The gap between private sector pay growth and inflation is the smallest it has been for a year, according to the latest data from the VocaLink Take Home Pay Index.

 

The monthly index – from the company that processes the salary payments for more than 90 per cent of the British workforce – reveals that whilst inflation has remained stubbornly above target during 2013, the difference between the VocaLink FTSE 350 average salary index and CPI inflation shrunk to just 0.3 percentage points in August – the smallest gap in a year.

 

Nevertheless at a time when there have been polarised views between an alleged ‘cost of living crisis’ and promise of recovery, the findings from VocaLink’s data for September suggests a varied position on monthly pay emerging across different sectors. During a week when there has been debate over the significance of the slight rise to the minimum wage, which came into force in October, the broader position suggests most workers are still feeling the squeeze with wages growing more slowly than prices.

 

• Private sector holds firm: The pace of growth in the VocaLink FTSE 350 Take Home Pay Index held steady at 2.4% in the three months to the end of September. Take home pay growth has now been at or above 2.0% for four consecutive overlapping three-month periods. While this may partially reflect improvements in the economy, the record increase in personal tax-free allowances introduced in April and the reduction in the top rate of tax are also likely to have helped boost income growth in recent months.

 

• Services sector pay grows: Take home pay growth in the services sector accelerated slightly to 2.7% year-on-year in the three months to September – up from 2.6% in the three months to August.

 

• Fifth consecutive fall in manufacturing: The sector has experienced the lowest growth in take home pay since the three months to January. Annual take home pay growth in the manufacturing sector fell back for the fifth consecutive month, to just 0.2% in the three months to the end of September.

 

• Public sector pay continues to fall: Take home pay in the sector fell at an annual rate of 0.1% for the fourth consecutive overlapping three month period.

 

David Yates, Chief Executive Officer at VocaLink said:

 

“During the party conferences in recent weeks a range of opinions have been put forward on the state of the economy and our grounds for confidence going forwards. For most hard working families, economic outlook and confidence starts with the monthly pay packet, whether there is a little more to spend each month, and how it keeps apace with the real cost of living. The closing of the cost of living gap between CPI and wages in the private sector shows pay holding firm and wages in the service sector continuing to grow slowly. The winter months will perhaps be the true litmus test as energy and heating costs kick in and families prepare for the cost of Christmas, many no longer able to depend on an end of year bonus.”

 

For more information and a copy of the report, please visit the VocaLink website.