Wage rises gather pace

ANNUAL pay rises picked up rapidly at the beginning of the year. Average wage settlements in the three months to January hit a 15-month high of 3.3%, according to research company Incomes Data Services.

The figure shows a sharp increase on 3% in December and is the highest rate since October 2003. The increase was revised up from 3.2% reported a month ago.

'This suggests that higher inflation and the tight labour market could be starting to feed through to a greater extent to push up pay,' said Howard Archer, chief UK economist at City research firm Global Insight.

He added that the Bank of England had been closely watching wage increases and had appeared 'somewhat uncertain' why the tight labour market had not already pushed up pay rates.

Some economists have suggested that high levels of immigration in 2003 and 2004, boosted by EU expansion in Eastern Europe, have helped peg back wage rises despite record lows in unemployment in the UK. The jobless rate is currently 4.7%, the lowest of any of the Group of Eight richest nations.

Rising salaries filter through to higher inflation, which increases the pressure on the Bank to raise the cost of borrowing. The base rate has been fixed at 4.75% since last August.

Most British pay deals are based on the Retail Price Index (RPI), which rose 3.2% on the year to January. The Consumer Price Index, which the Bank of England targets when setting interest rates, rose just 1.6%.