Pay deals falling behind inflation

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Settlements over the three months to July averaged 3.5%, up by 0.2% on the quarter to June, an analysis by pay specialists Industrial Relations Services (IRS) found.

But RPI inflation increased by 5% in the same period, leaving pay awards trailing price increases by 1.5%, said the report.

A study of over 80 settlements, covering more than 860,000 workers, showed that half of all deals were worth between 3% and 4.3%.

Sheila Attwood of IRS said: "Recent quarterly economic forecasts from the Bank of England, British Chambers of Commerce and Oxford Economics suggest that the UK's economic prospects have worsened significantly over the past few months.

"The labour market is expected to loosen as a result of this, which in turn is likely to reduce the level of pressure on wage demands.

"To what extent unemployment increases, and inflation falls, between now and the autumn, will be key to the level of pay awards we see at the start of the major bargaining activity in January 2009."

Bob Crow, general secretary of the Rail Maritime and Transport union said: "When inflation begins eating into workers' wages it is all the more important to set our sights on settlements that will protect living standards - not least when we know that the cost of many essentials is way ahead of the official inflation rate.

"It is not working people who have been over-extending themselves in the sub-prime mortgage market or stoking the debt mountain, and it is not they who should have to pay for the crisis with their living standards."