Take home pay growth falls for the fifth consecutive month

The VocaLink Take Home Pay Index has declined to a new record low of 1.6% in April from 2.0% in March. This is the fifth consecutive monthly drop in the VocaLink Take Home Pay Index, reflecting the major impact the recession has had on the labour market.

Take home pay growth in the manufacturing sector edged up in April but remained perilously low, with the VocaLink Industry Sub-Index at 1.4% from 1.2% in March. This continues to highlight the collapse in investment, trade and slashing of inventories seen by UK manufacturers in the ongoing recession. Wage growth in the service sector fell to an all time low of 1.7% from 2.4% in March as bonus payments and rising unemployment continue to slow remuneration.

Helen Ritchie, marketing director at VocaLink, said, “The record decline in pay growth in 2009, shown by the VocaLink Take Home Pay Index, significantly raises the threat of deflation and is likely to have a major impact on consumer spending. This could have a negative effect on the retail sector, which will be a further knock to the economy and its ability to recover quickly.”

Commenting on the latest VocaLink Take Home Pay Index, Douglas McWilliams, chief executive of economics consultancy cebr, said, “The unprecedented fall in wage growth so far this year will keep medium term inflation restrained, ensuring that the Bank of England can run a very expansionary monetary policy to ward off the threat of deflation. We expect interest rates to remain at extremely low levels for some time.”

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 measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.