Pay rises at a record low

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Take-home pay increased at an annual rate of just 1.1% during the month, down from 1.6% in April and a recent high of 4.5% reached in July last year, according to payments group VocaLink.

The group said the fall was being driven by the deterioration in the labour market, with unemployment currently at its highest level since 1996, as well as falling inflation and firms slashing discretionary bonuses.

Helen Ritchie, marketing director at VocaLink, said: "With the VocaLink Take Home Pay Index at an all-time low, the huge impact of reduced bonuses and the weak labour market continue to be reflected in wages across all sectors.

"Take-home pay growth has now fallen a total of 3.4% since July last year."

Wage growth in both the manufacturing and services sector also hit the lowest level recorded by the group since it started the index in 2004.

VocaLink, which processes 90% of UK salaries, said the rate at which take-home pay in the manufacturing sector was growing slumped to 1.1% in May, down from 1.4% the previous month.

The fall was even more dramatic in the services sector, where the rate at which pay is growing dived from 1.7% to just 1%, as falling bonus rates dragged down remuneration levels in the sector.

Douglas McWilliams, chief executive of the centre for economics and business research, said: "With wage growth remaining at a record low, the key issue for the Bank of England going forward is how far to extend the quantitative easing scheme and when to unwind it.

"We expect the Monetary Policy Committee decision in June to be uneventful, with interest rates on hold and no extensions to the quantitative easing scheme."