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Pay deals in the manufacturing sector were higher than the rest of the economy in the last quarter of 2010 as the sector enjoyed improved fortunes, statistics have shown.

The median settlement in the sector was 2.9 per cent in the three months to December, found the latest analysis of pay awards from Incomes Data Services. This compared to a median of 2.2% for the whole economy as a whole, and was well ahead of 2.1 per cent for private-sector services. Manufacturers also made proportionally more deals of 4 per cent or more, with 38 per cent of pay agreements coming in excess of that figure.

Recent economic data has pointed to an upturn in manufacturing, with factory output in December much higher than economists’ forecasts. However, pressure on pay is also coming from burgeoning inflation, with RPI standing at 4.8 per cent, said researchers. A significant proportion of manufacturers have long-term pay deals that are linked to inflation.

“The squeeze in incomes resulting from the sharp rise in inflation means that, in many parts of the private sector, employees are looking for wage rises to compensate them for cuts in real take-home pay,” said Ken Mulkearn, editor of IDS Pay Report. “Our latest figures show evidence of this in manufacturing in particular. Pay growth is more subdued in other parts of the private sector, but the pressures could be reflected in bonus payments over the coming months.”

Inflation looks set to increase further in the coming months as the VAT rise which took effect at the start of the year comes into the inflation figures, and rising oil prices also have an impact. Early data from January 2011 shows that upward pressures on pay are continuing, with just two of the 25 awards monitored so far resulting in increases of below 2 per cent, and a median increase is 2.6 per cent across the economy.

Another factor that gave an uplift to pay deals at the end of last year was the minimum wage, which went up by 2.2 per cent in October.

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