VocaLink Take Home Pay Index starts on road to recovery following all-time low
The VocaLink Take Home Pay Index for March has recovered from its all-time low in February to record a rise of 0.5 percentage points, bringing the index to 1.5%. The rise has been significantly aided by a strong rebound in manufacturing sector pay growth which increased by 0.9 percentage points in March. However, even though the economic recovery is underway, there is still significant spare capacity in the economy. As a result, since March last year, the VocaLink Take Home Pay Index has stabilised between a 1.0% and 2.0% range, which is significantly lower than the 4.0% pre-recession average.
For manufacturing, the VocaLink index rebounded sharply in March to 1.3% from its record low level of 0.4% in February. This index now stands at the average level experienced in 2009, though still significantly lower than the 3.2% average level of 2008. Much of this recent improvement in the manufacturing sector is due to the turning inventory cycle, which is expected to provide a boost to overall economic growth in the first quarter of this year. However, it is unclear whether this rise in manufacturing output will be temporary or sustained.
Meanwhile, the VocaLink services index edged up by 0.2 percentage points to 1.5% in March. Despite being above the VocaLink manufacturing index, the services index remains a full two percentage points below its average level over the past five years of 3.5%. The main reason for this relative underperformance is the excess capacity in the economy.
Marion King, Chief Executive Officer at VocaLink, said: “Arguably, UK employers are using wages, instead of employment, to control costs much more so than in the past. As a result, wage growth remains at a structurally lower level; this trend is set to continue throughout 2010 as employers put off making long-term decisions around raising employment and/or wages.”
Douglas McWilliams, chief executive of economics consultancy cebr, said: “While the rise in March’s VocaLink Take Home Pay Index is a large move relative to the level of the index, it acts to merely take the index to the midpoint of the 1.0% to 2.0% range that it has been fluctuating in since March 2009. It is clear that wage growth will continue to remain at historically depressed levels until upward pressures emerge from significant rises in employment.”
VocaLink processes over 90% of UK salaries and the VocaLink Take Home Pay Index, established in 2004, provides the most timely and accurate disposable income data available in the UK. It is based on actual payments made to employees on a three-month moving average compared with the same
continuation measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.
Note to editors:
The VocaLink Take Home Pay Index is an important aspect of the UK’s economic performance and one of the components that drives the Bank of England’s Monetary Policy Committee’s (MPC) interest rate policy due to be announced on 8th April.
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