Squeeze on private sector workers' incomes eases

LONDON (Reuters) - Pay rises for British private sector employees finally caught up with inflation in May, relieving some of the prolonged pressure on their incomes, data showed on Thursday.

Many Britons have become worse off since the financial crisis, which drove up unemployment and helped tip the country into two recessions in the past four years, while high inflation has eaten up meagre wage growth.

The median pay award in the private sector stood at 3 percent between March and May, unchanged from the February to April period, said Incomes Data Services, a Thomson Reuters company.

Meanwhile, annual inflation on the Retail Price Index measure - which includes more housing costs than the Consumer Price Index - fell to 3.1 percent in May, the lowest since December 2009, from 3.5 percent in April. CPI inflation was even lower last month, coming in at 2.8 percent.

"If private sector pay settlements remain at current levels and (RPI) inflation falls further, then the squeeze on workers' incomes which began in 2008 will have been loosened significantly," said Ken Mulkearn, editor of IDS Pay Report.

Within businesses, the median pay rise of 3 percent in manufacturing and production outpaced a 2.6 percent increase in the services sector. However, public sector employees were a lot less fortunate, with their wages frozen as part of Britain's efforts to cut its huge budget deficit.

This and pay freezes in the voluntary sector were the main drags on the median wage settlement for the whole economy, which slipped to 2.5 percent between March and May from 2.8 percent between February and April.

Policymakers hope the easing in pressure on consumers' budgets will enable them to spend more, providing support to the economy, as other possible sources of growth - investment and exports - are hit by the euro zone debt crisis.

(Reporting by Olesya Dmitracova; Editing by Catherine Evans)