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Economy

Latest figures confirm inflation concerns

Written by Gary Howes

Wednesday, 09 July 2008

The VocaLink Take Home Pay Index rises to its highest level since August 2006.

The VocaLink take home pay index has reached its highest level since August 2006, registering 4.3% growth in June and remaining above 4% for the third month in a row. Concerns will be raised at a Monetary Policy Committee (MPC) meeting due at the Bank of England.

Richard Cooper, marketing director at VocaLink, said, "The marked rise in the VocaLink take home pay index over the past three months will cause alarm bells to ring over the prospects for inflation. If wage demands continue to increase, they have the potential to lead to a sustained period of above target inflation."

VocaLink has suggested that one of the reasons for this increase is employees negotiating higher wages with their employers in order to buckle down for perceived tough times ahead.

The key driver for the increase has been the sharp rise in the manufacturing sector sub-index, which grew by 1.0% to 3.9% in June, the highest level for the sector in 10 months.

Slowing manufacturing and increasing wages is a classic cause of inflation. The MPC will have to consider this against a backdrop of a slowing economy which would require a drop in interest rates to try and revitalise the economy.

VocaLink processes over 90% of UK salaries and the VocaLink take home pay index is 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 measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.

Figures at a glance: