An illustration accompanying an article in Saturday's Guardian (external website; requires registration to access the digital edition of the 11 July 2009 issue, page 33) listed 'five reasons to fear inflation' and 'five reasons to fear deflation' in 2010. Pay awards play a key role in each scenario.

The Guardian describes the scenario in which the current weakness in pay awards could help inflation to rebound strongly in 2010, as follows:

Workers start to seek a bigger than normal pay rise next year to make up for the freeze or even cuts they suffered this year.

But, according to the Guardian, record lows in pay awards could alternatively contribute to a situation in which deflation arises, as follows:

Workers are increasingly accepting pay cuts, a process which could soon entrench deflation.

At present, the pay bargaining situation as monitored by pay specialists at Industrial Relations Services (IRS) - part of the XpertHR group -  would suggest that something resembling the latter scenario is more likely to come to pass. But pay cuts are by no means as prevalent as the Guardian suggests. IRS research indicates that, while pay freezes are on the rise in 2009, pay cuts remain very rare.

As ever, IRS will continue to provide the most authoritative and comprehensive analysis of movements in whole economy pay awards for UK workers.

And if you are involved in pay setting at your organisation, your input to our pay data is always appreciated. If your organisation has recently carried out an annual pay review, and if it has now been settled, please get in touch so that we can add your organisation's pay award to the IRS database.