Pay Bulletin April 2015

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It is that time of the month again for our Pay Bulletin! If you are new to EEF publications, Pay Bulletin is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies.

How is pay trending? ↔

The three-month average pay settlement was 2.2% year-on-year in March. The figure has remained the same for the third consecutive month, as illustrates below. This is, however, below last March’s figure of 2.6%, as average pay settlements have drifted down since late last year.

 PBApril15_1

Source: EEF Pay Bulletin

ONS latest labour statistics show that pay growth in both manufacturing and the whole economy have continued, but slowed down. In the three months to February, total pay rose by 0.6% year-on-year in manufacturing, a drop of 0.5 percentage points compared with the three months to January; whereas in the whole economy, total pay rose by 1.7%, a drop of 0.2 percentage points from the previous three-month period. Excluding bonuses, pay growth in manufacturing was 0.5% compared with the whole economy figure of 1.8%.


And pay deferrals? 
 ↓

The proportion of deferrals fell slightly, from the revised figure of 5% in the three months to February, to 4% in the three months to March. This followed the declining trend that we have seen since November 2014.


And the biggest question of all - what is the latest inflation? ↔

The annual rate of CPI inflation was 0.0% in March, in line with our forecast. This was the same reading as last month and the lowest on record. The largest downward contributions were from clothing and gas prices. The impact of three of the big six energy providers cutting their gas prices was offset by a rise in the motor fuels price. Core inflation edged down 0.2 percentage points to 1.0%, which was the weakest reading in nine years.

As we have previously discussed, there remains a fair chance that we will see a negative reading for CPI inflation over the coming months (which also echoes the Bank of England’s forecast). On one hand, the weekly data from DECC suggests that petrol prices have continued to climb during the past few weeks. There is also a good chance that March’s fall in clothing prices is only temporary, and will unwind in April. But set against these upward pressures, there was a big jump in core inflation last April (see the red line in the chart below) which, unless repeated, will put downward pressure on the annual inflation rate next month. The effects of lower oil prices, which we cannot overlook, will also continue to feed through the supply chain towards consumers over the coming months.

PBApril15_3
Source: ONS

We expect the inflation rate to pick up towards the end of this year, as the base effects, due to 2014’s collapse in oil prices, begin to kick in. But we expect core inflationary pressures to remain well anchored, ensuring that inflation to remain below the 2% target for a prolonged period.

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