Private sector pay increase expected in second quarter

Private sector pay growth is expected to increase in the second financial quarter of 2013 despite a volatile year, according to the Bank of England.

Its Monetary Policy Committee’s (MPC) August Inflation report revealed in the first financial quarter of 2013, real income was still below its 2007 peak. In comparison, in the 1990s economic recovery, real income was around 12% above its pre-recession level.

The MPC stated it expected regular private sector pay growth at 1% on average in the second half of 2013, which will be weaker than the post-recession average rate of just under 2%.

This follows a volatile growth period for average weekly earnings (AWE), which have risen from 0.1% in the first financial quarter of 2013 to 3.4% in the three months to May.

The report also stated that poor productivity growth and labour market slack, where there are substantially more prospective workers than jobs in the market, have constrained pay.

In addition it found that the reduction in the top rate of income tax in April 2013 from 50% to 45% meant that some employees were able to defer bonuses that they would have otherwise received in the first financial quarter of 2013, thus benefiting from the lower rate of tax.