Labour market think tank, Incomes Data Service (IDS) revealed that average pay deals for December and January jumped from 3 per cent to 4 per cent as employees sought better wage deals in the face of rising inflation.
Ken Mulkearn, editor of IDS Pay Report, said: “In the face of rising inflation, employees are likely to demand higher basic pay increases in order to maintain their purchasing power.”
With the Consumer Price Index (CPI) currently running at 2.7 per cent, and with the Bank of England’s target set at 2 per cent, most economists predict a further 0.25 per cent increase on the current 5 per cent rate to reduce inflation.
In addition, the current Retail Price Index (RPI), which includes housing costs and council tax increases in its inflation calculations, reached approximately 4 per cent. In turn some analysts believed this could produce an upturn in the number of people re-mortgaging in the hope of secure the lowest possible rate of interest.
Simon Webster, managing director at Facts & Figures Financial Planners Ltd, said: “Inflation-busting pay rises are a result of the economy doing well. However, these rate rises are not sustainable and will eventually go back to being flat as they have been for the past few years. Although people continue to talk about rising house prices, in the long term above-inflation house prices are unsustainable – it’s just a question of when this slowdown will happen.”
