Our Pay Bulletin for September publishes today. 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 stable at 2.7% year-on-year in August. Our current data is slightly above the general trend for average settlements, which have been coming in between 2.4% and 2.6% for the past two years.
The proportion of deferrals was at 0% in the three months to August, unchanged from the figure in the three months to July. Before that, the last time we had a 0% proportion of deferrals was August 2012. Have a look at the interactive graph below which tracks the figures for two years.
The Labour Statistics published by ONS continue to show that pay growth in manufacturing outpaces the trend in the broader economy. In the three months to July, pay rose by 2.0% year-on-year in manufacturing, a climb of 0.4 percentage points. In the whole economy, pay rose by 0.6% in the same period. Excluding bonuses, pay was up 1.7% in manufacturing, and 0.7% across the economy as a whole. For a more in-depth look of the Labour Statistics which came out yesterday, please refer to Felicity’s blog.
And what about inflation?
The annual rate of CPI inflation slowed to 1.5% in August. The decline in inflation between July and August was mainly a result of the falls in petrol and food prices. The largest uplifting effects, on the other hand, came from apparel and footwear, transport services and alcohol. The softer inflation may ease pressure on the Bank of England when considering when to raise interest rates, an on-going hot topic throughout 2014.
Although there was a fall in the inflation rate, it still came in marginally higher than our original forecast, mainly due to the influence of a weaker pound on core prices (which includes food, energy, alcohol and tobacco). The inflationary environment in the coming months remains rather gentle. There is little sign of inflationary pressure from commodity prices and the supply chain. As we flagged before, the large amount of spare capacity continues to bear down on margins and wages. We continue to forecast that CPI inflation will remain below the 2% target for the next couple of years, though the outcome of today’s Scottish independence referendum would likely to make an impact towards sterling, and subsequently would affect the inflationary pressures.