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Pay rises beating inflation – for now

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Pay deals for workers are increasing as employees demand higher rises to keep pace with inflation and maintain their saving and investment level, according to a recent survey.

Incomes Data Services (IDS) assessed the first wage settlements of 2007 – and January is regarded as a key month in establishing the year’s pay increases – at around 4%, up from 3% in the last quarter of 2006.

A spokesperson for IDS said: “In the face of rising inflation, employees are likely to demand higher basic pay increases to maintain their UK investment in the economy.”

IDS said that its survey was based on nine pay deals which have already been agreed this month. The median rise, which strips out the highest and lowest awards from the equation, was in the 4% area, which is higher than inflation and represents a significant UK investment by employers in their workers.

However, to set against the rises, the Consumer Price Index rose to a near-decade high of 2.7% in November 2006, and the Retail Price Index increased to 3.9%.

Some observers have expressed fears that higher wages will inevitably mean higher inflation as each element feeds the other and creates inflationary pressure. If this process accelerates then it is felt that further interest rate rises will be inevitable this year, to maintain the balance of UK saving and investment in the economy.


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