VocaLink Take Home Pay Growth Nose Dives As Inflation Creeps Up
Thursday, January 13, 2011
- Private sector earnings growth, as measured by The
VocaLink FTSE 350 Take Home Pay index, falls to 1.1% year-on-year
in December (from 1.7% in November), its lowest level since July
2010
- Public sector earnings, as measured by The VocaLink
Public Sector Index, also edges down to 1.1% annual growth in
December from 1.3% in November
- Annual growth on the VocaLink manufacturing index drops
to its lowest level on record at 0.4% in December from 2.0% last
month
London, 13 January 2011: Both public and
private sector annual take home pay growth has fallen in the three
months to December 2010 according to the latest VocaLink take home
pay indices. The VocaLink FTSE 350 index, a proxy for private
sector earnings, fell to 1.1% annual growth, a big drop from last
month's figure of 1.7%. Annual public sector pay growth, which has
been stagnant since August, has also dropped from 1.3% last month
to 1.1% in December .
VocaLink Take Home Pay Growth drops by 0.6 percentage
points as prices go up
After steady increases in the yearly growth rate of private
sector take home pay over the second half of 2010, this month's
figure has fallen to its lowest level since July 2010. This is a
major setback for UK households as the rate of consumer price
inflation remains elevated at 3.3%. With VAT increasing to 20% this
month, it's likely that inflation will remain at a high level
throughout the course of 2011. The fall in take home pay is also a
likely consequence of the rise in commodity prices in the latter
half of 2010, including continued oil price increases.
Retail sales growth dips below take home pay
growth
Annual growth in the volume of retail sales of 1.6% in November
dipped below take home pay growth for the first time since 2009.
During 2010, many households were maintaining their lifestyle by
spending their savings. With little prospect of a large improvement
in take home pay growth in 2011, continuing to spend savings will
become less of an option for the average UK household. As such
growth in retail sales is likely to cool in 2011, which will
provide a major headwind to the UK recovery.
Unprecedented cost hikes force manufacturers to hold wages
down
The VocaLink manufacturing index saw a sharp drop in take home
pay over the three months to December from 2.0% to 0.4%, its lowest
ever level of recorded expansion. Data from the Chartered Institute
of Purchasing and Supply (CIPS) showed that manufacturing activity
was slightly stronger in December than November but significant
cost pressures are mounting on firms. The rate of increase in the
cost of manufacturers' raw materials, their 'input prices', reached
its highest level since records began in January 1992, according to
CIPS.
Marion King, Chief Executive Officer at VocaLink,
commented:
"Eleven months of elevated inflation and another VAT hike,
combined with a sharp drop-off in take home pay growth, is bad news
for UK households. In real terms the average family is seeing their
weekly budgets cut,. While this puts significant strain on
individuals, it also poses a major risk to the UK recovery."
Douglas McWilliams, Chief Executive of economics
consultancy Cebr, said:
"The public sector pay growth drop is actually fairly moderate
given that we expect it to fall close to zero by mid-2011, due to
the public sector wage freeze. The only silver lining is that
inflation is unlikely to get out of control because of the ongoing
slack in the labour market."
Notes to editors:
Follow
this link to read the full report available from Thursday 13
January 2011