Increase in UK take home pay more subdued

A VocaLink press release explains:

• The VocaLink Manufacturing Index drops 0.5 percentage points from 2.6% in July to 2.1% in August
• The VocaLink Services Index declines from 2.9% in July to 2.7% in August
• The VocaLink Public Sector Index increases this month, showing annual growth of 1.7% for the three months to August, up from 1.3% for the three months to July

So this means that disposable personal income gains are moderating. In the UK, where the increase in consumer prices is the most elevated in the G7, income in real terms is declining and that has led to a gloomy picture of the UK economy’s prospects.

VocaLink continues:

Private sector pay growth as measured by the VocaLink FSTE 350 Take Home Pay Index has declined for the second consecutive month to hit 2.7% in August, down from 2.9% for the three months to July. As a result of April’s increase in Income Tax free personal allowance, private sector pay growth remains above the levels seen throughout 2009 and 2010 but it is still considerably lower than in 2008 when growth averaged at 3.3%.

Falling pay in the services and manufacturing sectors in August has contributed to the drop. The VocaLink Manufacturing Index has fallen to 2.1% in August from 2.6% in July and the Services Index has declined a further 0.2% in August to reach 2.7%. This is very much weaker than the 3.4% pay growth seen on the Services Index in June this year.

Yet, three month annual take home pay growth on the VocaLink Public Sector Index has risen from 1.3% in July to 1.7% in August. Despite the fact that many public sector workers are subject to pay freezes, a recent survey published by Hay Group suggests that almost eight in ten public sector managers are continuing to give workers annual pay increments related to a worker’s length of service. This trend may explain the boost in pay growth this month. However, despite this modest increase, the VocaLink Public Sector Index still remains the lowest of all the VocaLink take home pay indices.

Commenting on this month’s findings, Marion King, Chief Executive Officer at VocaLink, said:

“Following a jump in take home pay growth at the start of the tax year, August’s VocaLink Take Home Pay Index results reveal that growth has started to settle down with private sector pay falling for a second month in a row. This weaker growth is a likely reflection of the ongoing tough economic conditions; rising inflation, the sovereign debt crisis in Europe, constrained bank lending and austerity measures, such as the VAT rise. Together these factors contribute to a more fragile UK labour market which will continue to pile pressure on take home pay growth going forward.”

Douglas McWilliams, Chief Executive of economics consultancy Cebr, said:

"The slowdown in private sector pay growth on the VocaLink Take Home Pay Index this month corroborates other recent economic indicators such as the Purchasing Managers Index and paints a rather bleak picture for UK workers. With further public sector job losses over the coming years and a tough trading environment for many private sector businesses, labour market conditions are not expected to improve significantly in the short-term, making only modest annual increases in gross income likely.”

Below are the figures. (Ç represents an up arrow and È represents a down arrow)

Source: VocaLink