Settlements respond slowly to inflation

While inflation receded slightly this month (see below), pay settlements recorded on the LRD Payline database are unchanged at a median level of 3.6% for the three months to April. The gap between private- and public-sector settlements has widened, with the private-sector median increasing to 4.0%. Settlements in manufacturing remain above those in services, with their median pay rises both increasing to 4.0% and 3.5% respectively.

Inflation

Growth in the retail prices index (RPI) fell back by 0.3 percentage points in the year to April, as it did in the RPI excluding mortgage interest payments and the consumer prices index; the three measures now stand at 4.5%, 3.6% and 2.8% respectively.

Inflation forecasters have revised their predictions upwards for the fourth quarter of 2007; the average forecast is now 3.5%, with a range from 2.5% up to 4.3%.

Earnings

The average earnings index rose by 3.8% in the year to March, well below its 5.2% increase to February. This was almost entirely caused by a fall in bonuses this year compared to 2006; if bonuses are excluded, the earnings index still saw a 3.8% in the year to March, which was a marginal increase on February’s 3.6%.

Most bonuses are paid in private-sector services, where the index excluding bonuses saw only a slight fall from 4.3% to 4.2% between February and March.