The principal inflation measure used by pay setters in the private sector fell sharply at the end of 2008. With unemployment also rising sharply as the recession bites, the 2009 pay round looks set to be the most subdued for some years.
Figures published by the Office for National Statistics show that the Retail Prices Index dropped from 4.2% to 3.0% in November. Meanwhile, the government's preferred measure, the Consumer Prices Index, also fell - from 4.5% to 4.1% during the month.
The widely predicted fall takes some pressure off employers. Looking back to early autumn 2008, when inflation hit 5%, it appeared likely that the 2009 pay round would be a race to catch up with rising prices.
Now, however, anecdotal evidence suggests that pay freezes are becoming increasingly common - and there have even been a number of reports of employers seeking pay cuts or offering workers lengthy sabbaticals on reduced pay.
Despite this, with pay specialists IRS reporting that the median rate for pay settlements at the end of the year was 3.8% for the second successive month, pay rises are now running ahead of inflation for the first time in two and a half years.
This appears likely to be a short-term phenomenon as both pay and price rises head downwards. Incidentally, if you are still wondering why deflation would be such a bad thing, read Martin Wolf's explanation in the Financial Times.
One in four pay settlements fall due in January each year, and a further four out of ten take place in April. By the beginning of May, more than seven out of ten employers should have completed their 2009 pay reviews.
Many will have been more preoccupied with attempts to cut the paybill by reducing the use of temporary workers, freezing recruitment, making voluntary or compulsory redundancies, and in some cases short-time working and other temporary measures.
Unemployment figures released shortly before Christmas showed the number of people out of work on standard definitions rise to 1.86 million in the period to the end of October. Figures for November and December will show further increases, possibly to beyond 2 million.
Despite the apparently unremittingly gloomy tone of the business and economic news throughout autumn 2008, with almost every day bringing still worse assessments of the UK economy and its prospects, some commentators paint a less apocalyptic picture.
Writing in The Sunday Times, economic commentator David Smith points out that he UK's hard-hit finance sector, at 8% of GDP, is only half the size of the manufacturing sector, and argues that the weakness of sterling will do wonders for exports, helping to hasten recovery.
Whether or not this turns out to be the case, economists still expect pay rises to come down in 2009. IRS collates forecasts from a range of institutions. Their current predictions for pay rises range from 2.4% to 4.0%, with an average of 3.4%. It would be no surprise if the actual figure was much lower.
Happy new year.
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