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Last Updated: Friday, 11 May 2007, 09:11 GMT 10:11 UK
Inflation 'pushing up pay deals'
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Rising bonuses have kept wage inflation in check
The number of UK pay deals above 4% is picking up as level of inflation rises, according to a report from Income Data Services (IDS).

The median average pay deal held steady at 3.5% in the three months to April, the IDS survey found.

But the number of deals above 4% rose to more than a third, as against a quarter in the previous three months.

News of higher pay settlements may trigger further fears about inflationary pressures in the economy.

The rising number of private sector deals at or above 4% is a clear indication of the impact that higher inflation is having on pay negotiations
Ken Mulkearn, IDS

On Thursday, the Bank of England raised UK interest rates to 5.5% - the highest level in six years - in an effort to bring inflation under control.

Rate concerns

One in four settlements is now worth 4.2% and the lowest deals are about 3%, IDS added.

The Bank of England has previously voiced concerns that rising Retail Price Inflation - which is used as a benchmark for pay deals and currently stands at 4.8% - is feeding through to pay deals and may trigger a wage-price spiral.

"The rising number of private sector deals at or above 4% is a clear indication of the impact that higher inflation is having on pay negotiations," said IDS Pay Report editor Ken Mulkearn.

"At the same time, the median settlement level for the whole economy appears to be holding up, despite the downward pressure on settlement levels in the public sector."

Global Insight economist Howard Archer added that a surge in pay deals had yet to materialise, as employers had been using bonuses, rather than pay rises, to reward staff.

"Consequently, wages have been the one inflation dog that hasn't bitten - at least yet - although the Bank of England currently has several other price pressures to worry about," he added.

However, most analysts expect the bank to impose at least one more interest rate rise, taking rates to 5.75%, as it moves to curb inflation.


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