Pay deals settle at 3%

UK pay deals have settled comfortably back into a familiar trend, with rises of 3% dominating the pay settlement chart, according to the monthly research from pay analysts IRS (Industrial Relations Services), part of LexisNexis Butterworths.

In the three months to 30 June 2005, the IRS headline measure of pay awards ñ the midpoint in the range of basic increases ñ stands at 3%, unchanged for the third consecutive rolling quarter. With headline inflation also unchanged at 2.9% in June 2005, basic pay awards continue to hover just above the increase in prices.

The IRS pay settlements analysis in the three months to the end of June is dominated by awards effective in April, the busiest month of the pay bargaining calendar.

IRS pay databank ñ other key findings:

Pay awards tightly bunched. The lower quartile pay increase ñ the point at which 25% of awards are the same or lower ñ has increased slightly (on the revised May figure) to 3%. This is now at the same level as the median pay rise and demonstrates the bunching of pay increases around the median.

Upper quartile rises. The point at which 25% of pay deals are the same or higher has also increased slightly (on a revised figure for May), to 3.4% in the three months to the end of June 2005.

Awards higher than a year ago. Six out of 10 (62.6%) pay deals in the past quarter were worth more than in the previous year. Around one in five (20.4%) paid the same increase, while 17% were lower than a year ago.

Service and manufacturing awards in check. Pay rises in the manufacturing and services sectors are still running neck-and-neck at 3% in the three months to June 2005. While manufacturing deals have been at this level since August last year, this is a fall from the 3.2% service sector increase of the first few months of this year.

Public sector awards in line with whole economy. In the year to June 2005, the median basic pay increase for public sector employees remained unchanged at 3%.

Merit rises outstrip basic awards. This month, 27% of all settlements are performance-based, covering an additional 245,000 employees. A separate analysis of these 73 pay deals reveals that the median paybill increase for performance-related rises is 3.6%, 0.6 percentage points higher than the median basic rise.

IRS Pay and Benefits editor, Sheila Attwood said:

îEmployers and unions settling in to pay negotiations now are working under a slightly different bargaining environment to those concluding deals in the earlier months of the year. Headline inflation hitting a six-year high at the end of the last year provided a significant boost to inflation-linked pay awards, and there was talk of another interest rate rise in the middle of the year.

Since then, inflation has fallen back to 2.9% (in May and June this year), and many commentators feel it is only a matter of time before the Bank of Englandís Monetary Policy Committee reduces interest rates again. For those pay setters concluding deals in the second half of the year, the outlook is for headline inflation to fall further as we head to the back end of the year. It is unlikely, therefore, that pay rises are going to overshoot the 3% mark again before the year is out.