Our Pay Bulletin for January publishes today. It is a monthly comprehensive survey of pay settlements, deferments and pay freezes in over 400 of our member companies. In this edition, we also make a closer look at the annual trends.
How is pay trending? ↓
Over the course of 2014, pay settlements were fairly stable in manufacturing, in a band around 2.5%, but they reached a peak at 2.7% in July. Since then, pay settlements have decelerated a little, but remain broadly in line with the picture we have seen in recent years, with the three-month average pay settlement coming in at 2.3% year-on-year in December. In 2015, pay settlements should remain at a similar level to those we have seen this year, although January will be a key month to watch.
Source: EEF Pay Bulletin
According to the latest ONS labour statistics, over the course of 2014, pay growth in manufacturing continued, but the pace of growth in pay in the rest of the economy has now caught up. In the three months to November, pay rose by 1.7% year-on-year in manufacturing and in the whole economy. Excluding bonuses, pay growth across the whole economy reached 1.8%, surpassing the manufacturing figure of 1.6%. This was the first time this happened since February 2012 (for a change!).
And pay freezes and deferrals? ↓
After a sharp drop in the proportion of pay freezes during 2010, the proportion remained close to 13% for two and a half years. The proportion of pay freezes then slipped again from late 2013, averaging at 6.9% of settlements. The proportion of pay freezes came in at the lower end in the three months to December, at 5%.
The declining trend was reflected in deferral levels too. The proportion of deferrals has stayed low during 2014, averaging at 3.3% of settlements. The proportion of deferrals ticked up by 0.6% to 5.3% in the three months to December, based on a small number of settlements.
Source: EEF Pay Bulletin
What does inflation look like then? ↓
The annual rate of CPI inflation fell to the joint lowest rate on record of 0.5% in December, an acute drop of 0.5 percentage points from previous month. The average CPI inflation rate in 2014 therefore, has been revised down to 1.5%. The main downward contributions, as widely expected, came from motor fuel prices.
December’s drop is unlikely to bring the fall in inflation to an end. With the recent drop in the oil price yet to feed through, it is likely that production costs across different industries and motor fuel prices will get lower, meaning a further decline in inflation is almost guaranteed. This should drive CPI inflation into negative territory by February. Underlying pressures are subdued, and core inflation is also low. As a result of this, we now expect CPI inflation to average just 0.1% in 2015 as a whole, compared with our previous forecast of 0.7%.