Our Pay Bulletin for June was published yesterday. It is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies. It consists of two main parts: pay trends and inflation trends.
How is pay trending?
The three-month average pay settlement was 2.5% year on year in May, the same level as the previous month. Our data is consistent with the average level of settlements we have seen since the beginning of 2011.
Source: EEF Pay Bulletin
The Labour Statistics published by ONS continue to show that pay growth in manufacturing outpaces the trends in the broader economy. In the three months to April, pay rose by 2.0% year on year in manufacturing, a drop of 1.1 percentage points from the three months to March; whereas in the whole economy, pay rose by just 0.7%, a drop of 1 percentage point from the previous month.
And what about inflation?
The annual CPI inflation rate was 1.5% in May, a slip of 0.3 percentage point from April, hitting the lowest level since October 2009. The downward pressure was mainly contributed by transport costs, air fares in particular, and the weaker trends in food and non-alcoholic beverages prices. This decline was marginally offset by higher motor fuels and reaction & culture prices.
To summarise, here is an interactive graph comparing annual growth rates in average earnings and consumer prices:
As shown above, pay growth in manufacturing (red line) has consistently exceeded average wage growth for the whole economy (blue line) since the second half of 2012. The recent slowdown in wage growth largely reflects one-off base effects associated with the timing of bonus payments in 2013. Underlying trends in manufacturing pay remain stable and above the CPI inflation rate (green line), pointing to further moderate real wage gains over the coming months. This contrasts with the picture for whole-economy earnings, which are still struggling to keep pace with the average rise in consumer prices.
Looking ahead on inflation, we expect to see a modest upward impact from base effects in the June data. Moving into the second half of 2014, we have revised down slightly our inflation forecast to 1.6% for this year as a whole, and 1.5% in 2015. This is based on the feed-through of the stronger pound, and the prospect of the Bank of England raising interest rates sooner than previously thought. Inflationary pressure along the supply chain from commodities or manufacturers will remain subdued, as previously reported, with spare capacity continuing to bear down on margins and wages.