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Pay Pressure Expected to Rise in 2005

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Mounting jobs market pressure points to a challenging New Year
for government, employers and the Bank of England, the Chartered Institute of Personnel and Development has warned.

Latest monthly job statistics show potential for pay pressure to build up as a result of the ongoing tight labour market, exacerbated by rising retail price inflation, according to John Philpott, chief economist at the CIPD.

Dr Philpott said: "Following a mid-year hiatus a combination of rising employment, falling unemployment and increased numbers of economically inactive people has turned up the heat in an already tight labour market. Signs of mounting pay pressure in the autumn months, especially in the public sector, are a particular cause for concern given that current and future pay demands are being driven up by rising retail price inflation.

"The Treasury will be worried by the potential impact of higher pay costs on an already delicate public spending and borrowing position. Employers in general will face a tough bargaining environment and will have to take action to contain wage costs if profits and investment plans are not to be squeezed. The MPC, meanwhile, may by spring 2005 have to act to cool the labour market in the knowledge that a hike in interest rates for this reason could have serious destabilising effects on other parts of the economy. Much will rest on sensible and forward looking behaviour on the part of pay bargainers."

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