UK pay awards steady at 2.9%

according to pay analysts IRS

Pay awards have now stood at 2.9% for three months, but with interest rate rises pushing up headline inflation, there could be some upward movement in pay settlements over the coming months, according to pay analysts IRS (Industrial Relations Services), part of LexisNexis.

The IRS headline measure of pay awards - as indicated by the midpoint in the range of basic pay deals - remained steady, at 2.9%, in the three months to June 2004. It has now stalled at 2.9% for three consecutive months and has yet to return to the 3% mark recorded by the IRS Pay Databank for every rolling quarter from April 2003 to March 2004.

Other key findings include:


Inflation outstripping pay awards. For first time since July 2003, the level of headline inflation (3% in June 2004) is higher than the IRS median pay settlement (2.9% in the same month).

Pay awards tightly bunched. The upper quartile rate, above which a quarter of all pay settlements lie, stands at 3%, just 0.1 percentage point above the median. The lower quartile, marking the cut-off point for the lowest 25% of pay awards, is 2.5%. This means that the middle half of all pay awards are covered by just 0.5 percentage points.

Public and private sector pay growth even. Basic pay settlements in the public sector continue to stand at 3% in the year to June 2004.

Meanwhile in the private sector, pay awards are also running at 3%, although on a quarterly basis they fell to 2.9% in the three months to June 2004.

Weighted median rises. Analysis of pay awards taking into account the number of employees covered by each review reveals that they have risen from 2.6% in May (revised from 2.5%) to 2.7% in June.

Gap between manufacturing and services sectors steady. Pay awards in the manufacturing sector are holding steady at 3% in the three months to June, while in the service sector they remain at 2.8% over the same period.

Pay deals now higher than a year ago. A matched sample of pay awards reveals that the latest awards were higher than in the previous year in 41% of cases. However, a further 40% were lower than in the preceding year, and just 19% remained the same.

Merit budgets above basic awards. The median pay bill increase for performance-based awards in the three months to June is 3%, just above the median basic pay increase of 2.9%.

Labour market refuses to slacken - The tight labour market also continues to exert pressure on wage setters as the pool of available labour diminishes. The latest labour market data showed that the claimant count unemployment rate fell to 2.7%, the lowest level since May 1975.


IRS Pay and Benefits editor, Sheila Attwood said:

The upturn in headline inflation - recorded in both May and June this year - has yet to filter through into pay settlements. Now that inflation is outstripping the level of pay awards, employees will be looking for higher increases to at least bring them in line with the rise in the cost of living.