Manufacturing Pay Settlements Strengthen

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ONS labour market statistics released last week showed that average earnings growth across the whole economy increased slightly to 1.4% in the three months to January, from 1.2% in the three months to December. Although this remains below the level of inflation, CPI has now dropped down to 1.7% and in manufacturing, pay growth was markedly stronger, with average weekly earnings growth of 3.2%.

Our own survey, released today, shows that pay settlements in the manufacturing sector have been creeping up.

The survey shows that the three-month average pay settlement reported by manufacturers has remained at a healthy 2.6% after hitting this height in January. Importantly, this includes one of the year's major pay rounds so will be seen by many as ‘setting the scene' for pay this year.

At 2.6% pay settlements were some way up from with those agreed in the summer months, which came in at just 2.2%. However, the level remains below pre-recession trends, suggesting that manufacturers have reached affordable agreements with staff, allaying fears about wage inflation.

Manufacturing pay settlements seem to be stabilising at a level that is both affordable and higher than last year. This is another good indication that the green shoots of recovery are firmly taking root.Looking ahead to the rest of the year there are also signs that the broader wage squeeze might abate.

  • The recent low levels of inflation look set to continue, for a number of reasons: the impact of tuition fees and other administered prices is set to fall out of the calculation; recent low levels of producer price inflation should dampen price pressures on consumer goods; and the stronger pound should push down the price of any imported goods which consumers buy.
  • Wage growth will also rely on increased productivity; while the data on this is somewhat out of date, recent signs of stronger economic growth should (all else equal) support a rise in productivity.


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