Despite recent signs of improvement in the UK economy and private sector wage growth, the latest findings from the VocaLink Take Home Pay Index suggest inflation continues to damage workers’ pay packet power.
The VocaLink FTSE 350 Take Home Pay Index saw an annual growth of 1.8% in the three months to May – the fastest rate of take home pay growth in the sector since August 2012. This comes as the UK economy also starts to show signs of a return to health, with the ONS’ second estimate of GDP in the first quarter of 2013 confirming that the UK grew by 0.3% in the first three months of the year.
However, despite this evidence of economic improvement, workers’ wages continue to struggle to grow at the same pace as above-target inflation rates. Workers in the private sector, for example, are on average £180 per year worse off in real terms. In April 2013 the average inflation adjusted take home pay salary for a worker in the private sector was £1,488. This is £15 per month less than the comparable inflation-adjusted average monthly pay packet of £1,503 in April 2012, illustrating the impact of inflation of workers’ pay packet power.
Annual growth in the VocaLink Manufacturing Index slowed slightly in the three months to the end of May, but continues to be comparatively strong at 3.2% growth. Take home pay in this sector has shown steady growth since January 2013, although economic indicators suggest this trend may not continue, given the sector’s reliance on the recession-stricken Eurozone.
Take home pay in the VocaLink Services Index also saw consistent annual growth with three month figures standing at 1.6% to the end of May 2013.
The VocaLink Public Sector Index continues to struggle. Take home pay was 0.3% lower in the three months to May compared with a year ago. This represents the second consecutive month that the VocaLink Public Sector Take Home Pay Index has contracted, highlighting the real impact of sector-wide pay freezes.
Commenting on this month’s findings, David Yates, Chief Executive Officer at VocaLink, said:”While there are indicators that the UK economy is starting to recover, the impact of weak take home pay is likely to continue impacting consumer spending power. Retail sales remain steady but subdued, rising just 0.6% in the three months to April compared to the same period a year ago. While the unseasonably cold weather could be a factor, low retail spending suggests consumers continue to tighten their belts. We will need to see sustained economic improvements before workers’ wages will regain the power of their pre-2008 salaries.”
Douglas McWilliams, Chief Executive of Cebr, said: “The recent economic data certainly gives us reason to be hopeful about the UK economy, as does the recent fall in inflation figures – in April inflation fell to 2.4%, the first time the annual rate of price inflation has fallen since September 2012. However, while this is a move in the right direction, there is a need for continued caution with take home pay growth lagging behind the rate of inflation.”
The VocaLink Take Home Pay Indices track monthly take home pay levels in the UK. They are compiled using data captured by VocaLink from the salary payments of over 200 FTSE 350 companies and over 600 public sector organisations. VocaLink is the processor for automated payments in the UK including all Direct Debit and Bacs Direct Credits, which account for over 90 per cent of salary payments delivered into employees’ bank accounts.
For more information and a copy of the report, please visit VocaLink’s website.