Home > Business Finance News > Wage inflation 'could hit 4%'

Wage inflation 'could hit 4%'

Published On 9 January 2007 at 09:37:04

Wage inflation is tipped to reach four per cent this year, according to the latest figures from labour market researchers.

Income Data Services (IDS) forecasts that annual salaries will rise by four per cent this year, placing growth at the top end of the usual three to four per cent range.

However, as wage inflation is one of the largest pressures on consumer price index (CPI) inflation, any increase could force the Bank of England to raise interest rates.

Some two-thirds of annual salary rises occur in the first four months of the year, meaning the bank should soon have an idea of what interest rate moves are necessary to bring inflation back down to its two per cent target.

Howard Archer from Global Insight predicted that the monetary policy committee will be "perturbed" by the news, even though other factors could have a mitigating effect on inflationary pressure.

He said: "The key question is to what extent will the slack in the labour market resulting from the marked overall increase in unemployment since February 2005 and a rapidly growing workforce dilute the bargaining power of workers and limit pay increases?"

If CPI inflation rises above three per cent, as is threatened, the bank's governor Mervyn King will be required to write to the chancellor Gordon Brown to explain the economic situation.

The forecast comes at a time when the number of people in permanent work is also rising at the fastest rate in nearly three years.

Recruitment agencies are placing clients in posts at the fastest rate for 33 months, according to figures from KPMG.


© Adfero Ltd

 

Related Business Finance News:

• FPB urges SMEs to prepare for higher interest rates
  8 June 2007 at 12:21:42
  A group which represents the interests of small and medium-sized enterprises (SMEs) in the UK has advised its members to take advantage of the Monetary Policy Committee's decision not to increase interest rates, and look for good fixed-rate loans.
• Businesses welcome rate decision
  7 June 2007 at 12:46:24
  Business leaders have welcomed the Bank of England's decision not to increase interest rates again.
• SME tax case goes to the Lords
  6 June 2007 at 12:44:49
  The Federation of Small Businesses (FSB) has backed a small business as its case against HM Revenue & Customs (HMRC) is heard in the House of Lords.
• Rain dampens retail sales figures in May
  5 June 2007 at 12:14:59
  Bad weather during May was partly responsible for the poor retail sales figures which small and medium-sized enterprises (SMEs) in the UK recorded in the month, a new report argues.
• Further rate rises 'will hurt SMEs'
  4 June 2007 at 17:01:38
  Ahead of next week's meeting of the Monetary Policy Committee (MPC), a group representing the interests of small and medium-sized enterprises (SMEs) has urged the Bank not to increase interest rates again.
• Bank offers free services to SMEs
  4 June 2007 at 09:01:54
  A leading high street bank has unveiled a new offer to try to encourage small and medium-sized enterprises (SMEs) to switch their banking services.
• Bank offers advice to start-ups
  31 May 2007 at 12:23:30
  A leading high street bank has launched a new service designed to help entrepreneurs start their own small and medium-sized enterprises (SMEs).