Wage deals ease in July but pressures remain

LONDON (Reuters) - Pay deals eased slightly in the three months to July, but there are signs that wage settlements in some sectors could be starting to reflect surging living costs, a survey showed on Thursday.

Incomes Data Services Pay Databank showed pay settlements produced an average deal of 3.5 percent in the three months to the end of July, down from an upwardly revised 3.6 percent in the three months to June.

But the upper quartile of deals rose to an average 4.5 percent in July from 4.2 percent in June -- the highest since October 2002 -- and 14 percent of deals were 5 percent or more.

"Higher and rising inflation is having an effect on pay negotiations in the private sector, but pressure on profits is also a key part of the picture as the economic outlook worsens," said Ken Mulkearn, editor of the IDS Pay Report.

The report surveyed 57 pay deals, with most data coming from the private sector and with the key April wage round falling out of the three month rolling period.

Bank of England policymakers have said they will keep a close eye on how wage setters respond to higher inflation, running at more than twice the official two percent target.

Monetary Policy Committee hawk Timothy Besley has been voting for higher interest rates because of concerns that inflation could remain elevated for a prolonged period, despite growing expectations of a recession in Britain.

Markets expect rates to start falling in the coming months as slower growth helps contain inflation, but any sustained evidence of a big pick-up in wages may cool those expectations.

The latest official data continues to point to subdued earnings growth with wages including bonuses rising an annual 3.4 percent in the three months to June, down from 3.8 percent growth in May and the weakest increase since August 2003.

(Reporting by Matt Falloon, editing by Mike Peacock)