A sharp rise in the rate of inflation over the past month means that pay rises are now running considerably behind increases in the cost of living, writes CELRE managing editor Mark Crail.
Data collected by CELRE's sister service, Industrial Relations Services, and published on XpertHR, show the headline measure of basic pay awards has risen to 3.5% in the three months to July 2008.
But inflation figures released on 12 August revealed that RPI, the measure favoured by most pay-setters, had risen to 5% in July 2008, up from 4.6%.
Pay awards have now been below the rate of RPI inflation for more than two years.
More broadly, unemployment in the quarter to June 2008 rose by 60,000 on the January to March figures, with the rate of unemployment also rising, to 5.4%.
In its August 2008 Inflation Report, the Bank of England said there were signs of a modest loosening in the labour market. But it felt that expectations of high inflation in the medium term could still increase pay pressures, thus posing an upward risk to inflation.
Recent quarterly economic forecasts from the Bank of England, the British Chambers of Commerce and Oxford Economics all suggest that the UK's economic prospects have worsened significantly over the past few months.
The Bank of England's monetary policy committee expects CPI inflation to pick up over the next few months, probably rising to above 5%. Towards the middle of 2009 inflation is expected to fall back, dropping below the 2% target in the medium term.
The Office for National Statistics said last month that the economy showed no growth from the first quarter of 2008. It ends a run of more than 15 years of consecutive growth in the UK.
The 0% growth figure was down from an earlier estimate of 0.2% and lower than the 0.3% growth recorded in the first three months of 2008. The figures have led top speculation that interest rates will be cut in the coming months.
Further commentary on current pay settlements can be found on the XpertHR Employment Intelligence blog.
- This is the first in a monthly series of commentaries published to help pay specialists understand the broader economic context of pay decisions.
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