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Steady as she goes for Q1 pay, but April may show increase, says IDS

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The median pay award in the UK remained steady at 2.5% in the three months to March 2011 – but early predictions suggest an increase for April, according to the latest figures from employment research organisation, the Incomes Data Service (IDS).

According to the IDS's latest findings, 61% of all pay deals were recorded in a range between 2% and 3% inclusive, while 83% of settlements were at 2% or higher over the reference period. IDS recorded marked clusters of deals at the 2%, 2.5% and 3% points, reflecting the varying circumstances facing different firms. Pay awards continue to be recorded at higher levels in the private services sector than in the rest of the economy: at 2.9% for the three months to March, compared to 2.5% for the manufacturing and production sectors.

A matched sample of increases at the same companies recorded by IDS in 2010 and 2011 shows that some two-thirds of organisations paid higher increases this year than last, while a further one-sixth paid the same increase in 2011 as in 2010. Among the organisations that paid a higher increase this year, the median award for 2011 is 3%, compared to a median of 1.5% in 2010.

The median settlement in the private sector for April is provisionally 3%. Both the figures for the matched sample and those for April reviews reflect the impact of higher inflation on private sector pay setting since the start of the year. April is also a key month for pay setting in the public sector.

The settlement level of 2.5% continues to lag behind inflation, which is currently 5.3% on the retail prince index (RPI) measure typically used to benchmark annual pay reviews. Offsetting the upward pressures on pay settlement levels are uncertainties over the outlook for the economy, as highlighted by GDP figures for the first quarter.

Consumer confidence appears to have weakened recently, and although the most recent labour market figures rebounded somewhat, with an increase in employment, the potential impact of job losses in the public services means that doubts remain over the future state of the labour market.

Ken Mulkearn, editor of IDS Pay Report, said: "Our pay settlement figures show overall stability, with some evidence of modest upward pressures coming through from the initial data on April awards.

"The various pressures on pay are finely balanced, with higher inflation being offset to some extent by employers’ concerns about the economic recovery and the impact of public sector job cuts on the labour market. "It may also be that companies’ retention of profits is acting as a brake on pay growth. This could be of concern to policy-makers, at least insofar as consumer spending – which appeared to weaken recently – relies on higher wages. Next month’s data, for the three months to April, will be important in this respect."