Pay growth falls as inflation rises

Public and private sector pay has fallen in the three months to December, according to new research from VocaLink, while inflation remains at 3.3%.

The Take Home Pay Indices show that private sector earnings fell to 1.1% annual growth in December 2010, a drop from 1.7% in November.

Annual public sector pay growth has also dropped from 1.3% in November to 1.1% in December.

Marion King, chief executive officer at VocaLink, said: “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.”

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