Our Pay Bulletin for October is published 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 fell to 2.4% year-on-year in September. This is the second consecutive fall in the three-month average settlement rate, which is now at its lowest level in 2014, as you can see below. It is, though, in line with the average level of settlements seen since late 2010.
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 August, pay rose by 1.8% year-on-year in manufacturing, a moderate drop of 0.2 percentage points compared with the previous month. In the whole economy, pay rose by 0.7%, in the three months to August. Excluding bonuses, pay was up 1.7% in manufacturing, and 0.9% across the economy as a whole. George has also discussed the Labour Statistics which came out on Wednesday in his blog.
And what about inflation? Slipping!
The annual rate of CPI inflation dropped to 1.2% in September, the lowest rate in five years. The largest downward contribution came from transport costs (in particular, sea fares and air fares, which always fall in September following the summer holiday period, obvious reasons), followed by prices for recreational goods. In contrast, there was no notable upward pressure on the CPI 12-month rate.
Here is an interactive graph which illustrates the contributions to the change in the CPI 12-month rate in September and August:
Looking ahead, inflation should remain below the 2.0% target in 2014 and 2015. Given weaker global growth prospects, demand for oil is likely to remain weak, pushing the oil price down in the short term. The domestic inflation environment is also relatively benign, with little input price pressure and persistent spare capacity set to continue to bear down on margins and wages. We now expect the CPI rate to fall back to 1.2% in the spring of 2015, and consequently, average just 1.5% in 2015.
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