UK pay stability record broken - at last

The long period of UK pay stability has ended, with the level of pay settlements rising in the first round-up to include pay deals effective in 2005, according to the monthly analysis from pay analysts IRS (Industrial Relations Services), part of LexisNexis Butterworths.

IRSís provisional analysis of pay settlements concluded between November 2004 and January 2005 reveals that the median basic pay award has jumped to 3.3%. On the back of rising inflation in the last few months of 2004, the IRS whole-economy measure of pay awards is 0.3 percentage points higher than the 3% figure recorded for the previous rolling quarter to December 2004, and every previous rolling quarter back to April 2003.

This latest finding means that the IRS headline measure of pay awards has reached its highest level for more than six years, having last stood at 3.3% in December 1998. It is also the first time in 22 months that IRSís measure of pay settlements has moved from its 3% stronghold. The longest period of pay stability in the IRS pay calendar has now been broken.

Other key IRS pay databank findings:
Lower quartile jumps half a percentage point. The lower quartile basic pay award - below which a quarter of pay deals fall - has jumped to 3% for the three months to the end of January 2005, up from 2.5% for the quarter to the end of December 2004. The lower quartile measure is at its highest level for almost four years, as it last stood at 3% in March 2001.

Upper quartile stable. The upper quartile measure - marking the point above which 25% of pay deals lie - remained unchanged at 3.5% for the three months to January 2005. The range of pay settlements has narrowed significantly, with half of all pay deals falling within just half a percentage point.

Private sector pay awards jump. The median pay increase for deals reached with private sector employers mirrors that in the whole economy, jumping to 3.3% for the quarter to January.

Public sector pay awards steady. In the public sector, which is in the middle of the quietest period of its pay bargaining calendar, the median pay award remained steady at 3% in the 12 months to January 2005, unchanged for the tenth consecutive rolling year.

Manufacturing and service deals also up. January is a key bargaining month for the manufacturing and production sector, accounting for seven in 10 of the deals concluded in the first month of the year. Pay deals in this sector rose to a median 3.2% in the quarter to January 2005. Deals in the service sector have increased to 3.3%, although this is based on a relatively small sample ahead of the more important April bargaining round for this group of employers.

Pay deals higher than a year ago. More than six in 10 (62%) pay settlements were higher than in the same quarter last year. Just under a fifth (19%) paid the same increase in both years, while the remaining 19% of employee groups received a lower award.

Annual figures unchanged at 3%. While pay rises over the past quarter have risen to 3.3%, the annual figure, taking into account pay awards with effective dates in the 12 months to 31 January 2005, remains unchanged at 3%.

Merit deals higher than basic awards. In the quarter to January 2005, the median budget for pay rises based on performance stood at 3.5%, 0.2 percentage points above the basic pay deal figure of 3.3%.

IRS Pay and Benefits editor, Sheila Attwood said:
Although our settlement measure has risen to a six-year high, there seems little prospect of a sustained and decisive take-off in wage deals in the year ahead. The key, of course, is headline inflation - the main benchmark in the pay-setting process - that fell in the past month, dipping by 0.3 percentage points from 3.5% in December 2004 to 3.2% in January 2005.

With the retail prices index (RPI) forecast to drop further over the course of this year - IRS economic forecasters suggest it will fall to 2.6% by the end of the year - it seems most unlikely that the recent upturn in settlements will be sustained in the longer term.