Pay settlements rising

Wage pressures could be stronger soon

The level of pay settlements is beginning to increase, according to the latest analysis from Income Data Services.

Their analysis of pay deals agreed between companies and their workers since July shows that most settlements call for yearly pay increases of between 3% and 4% - close to the current rate of inflation of 3.3%

But in 25% of the deals, the pay settlement calls for a wage increase of more than 4%.

And the level of pay settlements is beginning to creep up - with half of settlements analysed in September and October above 3.5%.

IDS points out that many long-term company pay deals are tied to inflation plus a set amount, so they are bound to rise as the inflation rate goes up.

In addition, many companies pay additional performance-related bonuses.

This appears to be particularly true in the private service sector, which has been showing the fastest rate of growth in average earnings.

Inflation threat

According to the latest official figures, average earnings have been growing at an annual rate of 4.1% in August - while service sector workers have received pay increases of 4.6%.

New figures for average earnings will be published on Wednesday, and any increase is bound to worry the Bank of England - which has so far left interest rates on hold at 6% since February.

The Bank believes that any increase above 4.5% in earnings is likely to be inflationary, and was relieved at the slowdown in earnings growth earlier in the year.

The Bank is already worried that government spending plans are putting too much money into the economy, and any further increase in domestic spending power would add fuel to the fire.

Inflation is also under pressure from another source - oil prices - and Tuesday will show whether the headline rate has ticked up further.