UK pay rising 'too fast'

Bank of England is concerned at continuing high wage increases

UK pay levels are continuing to rise uncomfortably fast, with average earnings going up by 4.7% in the year to September.

The figure is down from the 4.9% recorded last month, mainly because of fewer bonus payments, and is also lower than analysts expectations of a 4.8% rise.

But the Bank of England - which has increased interest rates twice in the past three months - has said it considers a figure above 4.5% to be "incompatible" with its 2.5% target for underlying inflation.

The Bank is likely to take some comfort from the fact that the latest figures show a downward trend in pay rises, although it is bound to remain very concerned about the inflationary effects of a rate above 4.5%.

Danger sign

Last month, Chancellor Gordon Brown, issued a warning that excessively high wage rises - in other words, those not justified by productivity increases - were a big threat to UK economic success.

He said there would be no return to the "old ways" and told business to be sure that inflationary pay awards would simply result in higher interest rates.

The detailed economic figures - from the Office for National Statistics - show that average earnings in private companies are increasing at a rate of 4.8%, compared to 3.9% in the public sector, although both figures are on a downward trend.

There was some good news for manufacturers, with the first fall in unit wage costs for five years and the biggest rise in productivity - 4.3% - also for five years.

This is seen as being down to hard-pressed industry shedding jobs in the past year, while output is now picking up with a rapidly accelerating economy.