Chart of the Day: UK Take Home Pay

I got this l via e-mail yesterday and thought it might be interesting:

The VocaLink FTSE 350 Take Home Pay Index continues to increase in the three months to May to reach 1.8% from 1.2% in April, showing signs that Income Tax and National Insurance changes are still having a positive effect. However, for the first time in 2011, the VocaLink Indices show that private sector pay growth is surpassing public sector pay growth.

Growth on the VocaLink Public Sector Index fell from 1.6% in April to 1.5% in May. With many public sector workers subject to pay freezes over the next two years, take home pay growth in the sector is likely to continue to show signs of slowing over the coming months.

Although this is the second successive month of increased growth on the VocaLink FTSE 350 Take Home Pay Index, take home pay growth still significantly trails behind the rising cost of living. Annual consumer price index (CPI) inflation reached 4.5% in April, up from 4.0% in March and over double the Bank of England’s 2.0% target. Households will subsequently see their spending power significantly eroded.

This month’s VocaLink data shows rises in take home pay for both the manufacturing and services sector. The services sub-index rose significantly from 1.2% in April to 1.9% in May, while manufacturing take home pay growth rose from 0.8% to 1.1%.

Commenting on May’s statistics, Marion King, Chief Executive Officer at VocaLink, said:

“We are starting to see the forecasted ongoing downward trend in public sector pay growth but it is positive to see that fluctuations in private sector pay have steadied. On both counts, take home pay growth is less than half of current inflation meaning that households are experiencing substantial falls in their spending power. Indeed, annual price inflation has been above annual take home pay growth since October 2009. With consumers subject to a two year financial squeeze it could put pressure on economic growth in 2011 as households rein in purchases of discretionary goods and services.”

Douglas McWilliams, Chief Executive of economics consultancy Cebr, said: “The latest data from the Office for National Statistics showed that household consumption fell by 0.6% in real terms in the first quarter of 2011, compared with the previous quarter. This is the second quarter of falling consumption – implying the consumer side of the economy has entered a technical recession. “

-VocaLink Take Home Pay Index: public sector pay growth falls below private sector for first time in 2011 (no link)

Here’s the Chart:

I can’t draw any conclusions yet because I haven’t really parsed this dataset. But it looks like the public sector pay is the most stable, while manufacturing is the most volatile.

It would be nice too see take home pay levels continue to turn up so they might one day keep pace with inflation. Right now, there is little hope of that occurring. Marion King is spot on about how inflation is sapping spending power. Legitimately, one cannot expect pay to rise by 4 and 5% per annum in a still weak economic environment. Therefore, the only way to see more purchasing power for consumers over the medium-term is via reduced future inflation.