Median pay settlements in the three months to January 2011 rose “sharply” to 2.8 per cent, according to a new report by Incomes Data Services (IDS).
Almost three-quarters of the pay awards during the quarter were in the manufacturing industry, but there were a small percentage of deals in the private services sector, which includes retail.
Close to half of the settlements were at three per cent and above, with IDS suggesting that higher inflation was a key factor in the rise.
Ken Mulkearn, Editor of IDS Pay Report, said: “Our latest figures show that wage rises have picked up in manufacturing and the level of awards in private services appears to have picked up too.
“The number of awards at three per cent or above has been rising and this has emerged as a key figure in pay setting.”
IDS’s report looked at 52 settlements covering 244,935 private sector employees in total, and the sharp hike in pay deals could prompt the Bank of England’s monetary policy committee to increase interest rates in the coming months.
Some commentators argue that the base rate needs to rise from its record low level of 0.5 per cent to prevent rising inflation being reflected in salary growth.
Commenting on today’s data, TUC General Secretary Brendan Barber said the greater number of pay settlements are a result of companies increasing their profits, but he warned that consumer spending potential is still going to be squeezed.
“Wages are still losing ground to rising living costs and the government is pushing through a downward wage spiral in the public sector - with pay freezes and bigger pension contributions - while inflation is around five per cent,” he explained.
So despite private sector pay levels growing, rising food, clothing and petrol prices, as well as the VAT hike at the start of 2011, are all set to put further pressure on consumers’ ability to make purchases in the months ahead, which could have a negative impact on industries such as retail as the year draws on.
Barber added: “This combination of tough pay settlements, tax rises and tax credit cuts due to start in April means that ordinary workers, and working families in particular, are about to experience one of the toughest income squeezes for a century.”