Take home pay growth has fallen below 4% for the first time in six months. This is partly due to a third consecutive monthly drop in the manufacturing sub index to 2.4%. However, pay growth in the service sector has also declined to 4.1% in October. This is due to the sector contracting as a result of weakening consumer spending, with retail and wholesale distribution the worst hit area. The service industry has been the engine of UK growth over the past ten years, but the credit crunch is now pushing it into recession.
Richard Cooper, marketing director at VocaLink, said, âThe continuing decline in the take home pay index is a clear sign that real incomes are falling. This is a concern for UK retail sales which are already on a downward trajectory. As consumers come under increasing pressure from high inflation and become less willing to spend savings as the recession starts to bite, it is likely that the retail sector will suffer further.â
Commenting on the latest VocaLink take home pay index, Douglas McWilliams, chief executive of economics consultancy cebr, said, âAs predicted last month, in response to the financial crisis, the Monetary Policy Committee voted in favour of an immediate reduction in interest rates of 50 basis points. With the economic outlook worsening, as indicated by the VocaLink take home pay index, we now expect to see another 50 basis points taken off base rates before Christmas, with a realistic chance of a 100 basis points cut.â
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.