Pay deals pick up to 3.5 percent in 3 months to July

LONDON (Reuters) - Wage settlements picked up modestly in the three months to July but remained 1.5 percentage points below retail price inflation, a survey showed on Friday.

Pay consultant IRS said median pay deals rose to 3.5 percent in the three months to July from 3.3 percent in the three months to June.

Nevertheless, pay rises are subdued by historical standards and Sheila Attwood, an editor at the consultancy, said deteriorating economic conditions and further job losses were likely to keep wage pressures under control.

"To what extent unemployment increases between now and the autumn will be key to the level of pay awards we see at the start of the major bargaining activity in January 2009," she said.

Pay is a key political issue in Britain at a time when rising living costs are squeezing households' disposable income.

Retail price inflation, the most widely-used gauge of living costs, rose to 5.0 percent in July. Consumer price inflation, the measure targeted by the Bank of England, rose to 4.4 percent and is expected to peak close to 5 percent in the coming months.

Prime Minister Gordon Brown has urged wage restraint to prevent a return to the wage-price spirals seen in the 1970s and 1980s. A breakdown of the figures showed public sector pay awards lagged that in the private sector, remaining at 2.5 percent in the 12 months to July.