Employers are facing more wage demands after inflation crept up to 3% last week – its highest level for 11 years.
This is eroding wages, which had already been hit by the Bank of England’s interest rate hike from 5% to 5.25% earlier this month.
Rising retail prices are added to greater mortgage and loan repayments, along with sharp increases in energy and public transport costs in recent months.
“There’s no doubt that we are in a period of upward pressure on wages – which can only be exacerbated by the interest rate hike and surrounding economic conditions,” said Rob McPherson, consultant at business advisory firm Hay Group.
“Rising household expenditure and debt repayments mean reduced cash available. This can only act to raise employees’ expectations at salary review time.”
Figures from the Office of National Statistics showed average earnings excluding bonuses rose by 3.7% in the year to November 2006, unchanged from October.
Manufacturing pay settlements were stable at 3.1% in the three months to the end of 2006, according to manufacturers’ organisation the EEF.
David Yeandle, EEF deputy director of employment policy, said: “The next month will be key in determining whether upward inflationary pressures have translated into stronger wage demands.”