Take home pay increases but long-term wage growth remains weak
- UK take home pay increases from 3.1% to 3.4% in October, says VocaLink
- Service sector shows unexpected strongest growth for six months
- But manufacturing sector remains at six month low of 3.0%
5 November 2007 – The VocaLink take home pay index reveals a slight increase of 0.3% in the level of take home pay in October. While not enough to lift persistent weak pay growth for the year, it is an improvement after September saw the biggest month on month drop since May.
Slow economic growth compounded by the ongoing credit crisis in the United States has contributed to levels of just 3.5% between January and October. This is significantly down on 2005 and 2006, when the average was 4.4% during the same period.
Results continue to vary between sectors. The service sub-index has seen an unusual spike of 0.6% in take home pay. While this is the strongest figure for six months, it still remains well below the recent peak of 4.9% in February. The increase in October suggests that so far the credit crunch has not affected financial and services firms as severely as expected.
September’s sharp 1.0% dip in take home pay for the manufacturing sector has levelled out. This mirrors findings from the Office for National Statistics for the third quarter of 2007, which shows that the manufacturing sector struggled, with output expanding by just 0.2% from the previous quarter. Over this period the VocaLink industry index has declined by over a third, from 4.8% in June to a six month low of 3.0%.
“Despite this month’s increase in take home pay, annual wage growth is well below 2006 levels” says Richard Cooper, head of marketing and communications at VocaLink. “If, as predicted interest rates remain unchanged, this could help ease the pressure for consumers, who face increasing prices on essential goods like petrol.”
Douglas McWilliams, chief executive of cebr, the economics consultancy which analyses the take home pay index for VocaLink, said: “When you look at the long-term trends, 2007 has been particularly weak for wage growth. In October 2006, seven of the previous ten months achieved growth above 4.0% whereas this year take home pay has only exceeded this level in a single month.”
Follow this link to read the full take home pay index report.