• Pay growth drops off slightly in November to 1.4 per cent after remaining steady at 1.7 per cent in the two previous months
• Services sector pay growth falls for the third consecutive month, dropping to 0.9 per cent wage growth, half of the corresponding value in October
• However, manufacturing take home pay growth rises for the fourth consecutive month by 0.5 percentage points to 2.0 per cent

London, 9 December 2009: The VocaLink Take Home Pay Index showed a weakness in pay growth as it fell to 1.4 per cent in November after remaining steady in the two previous months at 1.7 per cent. The continued fragility in the state of the economy, combined with poor prospects in the near-to medium-term, point towards ongoing slack in the labour market and a corresponding weakness in pay growth.

The reason for the fall can be attributed to the services sector. The VocaLink services index fell for the third consecutive month to reach 0.9 per cent pay growth in November. This is half of the value seen in October and significantly lower than the recent peak of 2.8 per cent achieved in August. The services index now stands at its all time lowest level and falls below the manufacturing index for the first time since June. The figures firmly dispel any notion of a robust or rapid economic recovery and will lead to increased caution about discretionary pay on the part of service sector firms.

In contrast, take home pay growth in the manufacturing sector increased in November for the fourth consecutive month. It has risen from its all time low of 0.5 per cent in July to reach 2.0 per cent in November. Much of this improvement can be attributed to the pick-up in manufacturing production as the inventory cycle started to turn. However, the implication remains that without strong growth prospects ahead, the boost from the inventory bounce will not be sufficient for sustainable improvements in pay growth.

Mark Chapman, marketing director at VocaLink, said: “Although retail sales were up slightly in October, the decline in November’s take home pay growth may well affect consumer spending as Christmas approaches. With the reversal of the VAT cut due in January, continuing weak pay growth and lack of credit availability retailers look set for a challenging year in 2010.”

Douglas McWilliams, chief executive of economics consultancy cebr, said: “Though we may see some short periods of higher or lower wage growth, overall the trend will remain at this lower level.  As a result, we expect the Bank of England to continue its unprecedented monetary easing policy by keeping rates at the current level into 2011.”

VocaLink processes over 90 per cent of UK salaries and the VocaLink Take Home Pay Index, established in 2004, provides the most timely and accurate disposable income data available in the UK. It is based on actual payments made to employees on a three-month moving average compared with the same Continuation measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.

Follow this link to read the full statistical report.