Pay growth "lags well behind inflation"

Growth in private sector take home pay trailed in the wake of rising living costs during the three months to December, a new report has claimed.

Figures from the VocaLink Take Home Pay Index showed disposal incomes grew by 2.6 per cent during the quarter, unchanged from the three months to November.

The consumer prices index measure of inflation ended 2011 at 4.8 per cent.

Growth in take home pay in the manufacturing sector slowed from 4.1 per cent to 3.6 per cent in the three months to December, ending a series of increases that started back in February.

Meanwhile, the rate of growth for the services industry edged from 2.4 per cent to 2.5 per cent.

Douglas McWilliams, chief executive of the Centre for Economics and Business Research, said the figures show that across the economy, pay growth remains "a long way short" of pre-recession levels.

"The latest forecasts by the Office for Budget Responsibility suggest that the unemployment rate is likely to rise from its current level of 8.3 per cent to 8.7 per cent in the final quarter of 2012, suggesting that pay settlements will, on average, struggle to return to typical pre-recession levels in the short term," he added.

"Although a fall back in inflation in 2012 is likely to provide some financial respite for households - in conjunction with a further increase in income tax free personal allowances - the weak economy will continue to bear down on living standards in the UK this year."