Pay deals below 3% for first time in three years

The headline rate of pay increases has fallen below 3% for the first time since March 2003, according to monthly data from the IRS Pay Databank. An analysis in the latest issue of IRS Pay Intelligence shows that pay rises at the start of the 2006 bargaining round stood at 2.9%.

The findings cover a sample of 78 basic pay settlements in the quarter to January 2006 and provide a median (midpoint in the range) figure for whole economy pay.

Researchers at IRS also found that two-thirds (64%) of settlements in a matched sample analysis were lower than in the same quarter of last year. A quarter (24%) of settlements were worth more than the previous pay award.

The interquartile range (the middle half of settlements) also moved downwards. Half of all pay deals concluded in the three months to January 2006 were worth between 2.5% and 3%. The interquartile range for the three months to December 2005 was 2.7% to 3.2%.

Falling RPI inflation towards the end of 2005 is cited as a key contributor to the slight drop, with figures of 2.5% growth in the year to October 2005 and 2.4% in the 12 months to November 2005 having an influence on January 2006 settlements as part of the lag effect when pay setters begin negotiations ahead of the pay review anniversary date.

The latest data from IRS Pay Intelligence finds that pay awards in the manufacturing sector have nudged downwards in line with the whole economy figure, to a median 2.9% pay increase. Meanwhile in the services sector, 2006 opens with pay awards holding at 3% in the quarter to January.

Public and private sector pay deals continue to run in line, both pitched at a median 3% increase in the 12 months to January 2006.

A separate analysis of long-term pay deals shows that inflation is a key determinant in long-term pay awards, with half of all long-term deals with a January anniversary date in the sample using an inflation-linked formula to set the 2006 pay award.

Sarah Welfare, researcher at IRS Pay Intelligence, said: ìIn the context of falling inflation over the course of 2005, our analysis provides further evidence of an easing of upward pay pressures during this key period in the pay bargaining calendar.î

She added: ìWhereas in January 2005, employees covered by inflation-linked pay deals benefited from higher inflation during the latter quarter of 2004, this yearís January awards are influenced by falling RPI during the close of 2005.î

Press inquiries only to Sarah Welfare, sarah.welfare@irseclipse.co.uk, 020 8652 2249