March 3, 2011 / 12:10 AM / 7 years ago

Wage growth picks up to two-year high - IDS survey

LONDON (Reuters) - Wage growth accelerated at the start of this year, according to a survey on Thursday that may raise concerns at the Bank of England that above-target inflation will become entrenched.

Figures from Incomes Data Services show the median pay award jumped to 2.8 percent in the three months to January from 2.2 percent in the three months to December.

That was the highest reading in just over two years but little more than half the rate of retail price inflation, traditionally the benchmark for wage deals.

Retail price inflation surged to 5.1 percent in January, according to official figures, and consumer price inflation rose to a two-year high of 4 percent -- double the Bank’s 2 percent target.

The survey may have been skewed by the fact that January’s pay awards were concentrated in manufacturing, a sector that has picked up strongly in recent months.

A lack of public sector pay awards is also likely to have contributed an upward bias. Many public sector awards were set last year for a period of three years, and most were well below this median level.

However, the rise may still be strong enough to worry Bank’s policymakers who are struggling to bring inflation back down.

The Bank has held interest rates at 0.5 percent for almost two years but is expected to start raising them in May or June of this year.

“Our latest figures show that wage rises have picked up in manufacturing and the level of awards in private services appears to have picked up too,” said Ken Mulkearn, editor of the IDS Pay Report.

“The number of awards at 3 percent or above has been rising, and this has emerged as a key figure in pay-setting.”

Reporting by Christina Fincher

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