VocaLink Take Home Pay Index shows challenging year ahead for UK wages

Thursday, January 12, 2012
  • Annual growth of VocaLink FTSE 350 Take Home Pay Index remains at 2.6% for three months to December, unchanged from three months to November
  • VocaLink Manufacturing Index falls from 4.1%, to 3.6% for three months to December
  • VocaLink Services Index edges up slightly to reach 2.5% for three months to December compared with 2.4% for three months to November
  • VocaLink Public Sector Index is unchanged, with annual growth in take home pay sitting at 2.0% for three months to December.

London, 12 January 2012: Private sector take home pay growth, as measured by the VocaLink Take Home Pay Index, remains unchanged this month sitting at 2.6% in the three months to December 2011 and well below the 4.8% consumer price index (CPI) inflation. Meanwhile, public sector take home pay growth continues to sit at a lower growth rate than the private sector, at 2.0% for the corresponding period. Both the public and private sector growth rates remain unchanged compared to the three months to November, suggesting that the impact of elevated unemployment and sluggish economic growth will continue into 2012.

This month's VocaLink Take Home Pay Index demonstrates the acute underlying weaknesses in the labour market, placing ongoing pressure on wages and salaries across the board. With further public sector job losses expected over the coming years and a tough trading environment for many private sector businesses, the stagnant figures in the VocaLink Index show that labour market conditions and therefore pay growth are unlikely to improve significantly in the short-term.

Manufacturing take home pay growth fell 0.5 percentage points over the three months to December to stand at 3.6%. Since February 2011, annual take home pay growth in the manufacturing sector had been on an upwards trend, hitting 4.1% for the three months to November. This latest figure from the VocaLink Index corresponds with the Markit/CIPS manufacturing purchasing managers' index (PMI), which stood at 49.6 in December -indicative of contraction in the sector.

However, despite the fall in the VocaLink Manufacturing Index seen in December, pay growth in the manufacturing sector remains higher than in both the services and public sectors.

Douglas McWilliams, Chief Executive of economics consultancy Cebr, said: "This month's VocaLink Take Home Pay Index shows that across all sectors, we are a long way short of pre-recessionary pay growth figures. The latest forecasts by the Office for Budget Responsibility suggest that the unemployment rate is likely to rise from its current level of 8.3% to 8.7% in the final quarter of 2012 - suggesting that pay settlements will, on average, struggle to return to typical pre-recession levels in the short-term.

"Although a fall back in inflation in 2012 is likely to provide some financial respite for households - in conjunction with a further increase in Income Tax free personal allowances - the weak economy will continue to bear down on living standards in the UK this year."