Pay deals beating inflation Salaries up but downturn will bite in 2009

20 December 2008

Pay deals have moved ahead of inflation for the first time in more than two years, but settlements are likely to fall 'considerably' next year, according to a new report.

The ability of many employers to award above-inflation rises next year will be 'severely affected' by the impact of the downturn, said pay analyst Industrial Relations Services (IRS). 

Average pay deals in recent months were worth 3.8%, above the rate of inflation, although some were over 4%, the study of 79 settlements found.

Pay awards in the public sector were around 2.5%, while deals in manufacturing firms were worth 3.9%, according to the report.

Investing savings

Business lounge

Consider paying for the business lounge for more relaxed surrounds

If you’ve received a Christmas windfall and are thinking about investing it in a high-interest cash Isa savings account, Which? has compared the market. Which? Best Buys on Cash Isas include Scottish Widows E-cash Isa, an internet-only account with an AER of 4.6% and a bonus of 1.5% payable for 12 months; Alliance & Leicester Easy Isa, where the 4.5% rate includes a 1.5% bonus payable to 15 February 2010; and Manchester BS Premier, which gives 4.5% plus a 0.5% bonus payable to 31 January 2010. The rest of the Which? Best Buy Cash Isas are from Loughborough BS, Kent Reliance BS, Stafford Railway BS, Principality BS, Yorkshire BS and Abbey.

Impact of inflation

Sheila Attwood of IRS said: 'It will be welcome news for employees to see that their pay rises are finally worth more than inflation.

'However, with the economic situation worsening, and disposable incomes already severely stretched, it is unlikely to put a lot of extra money in people's pockets. Inflation is forecast to fall considerably in 2009, and there is no doubt that pay settlements will, to some extent, follow suit.'

The end of year break is the ideal time to get your finances in order for 2009. Take a look at the Which? advice on how to switch current accounts, and follow the link to the Which? Best Buy savings accounts. And for those who decide to go down the investment route, Which? offers a range of alternative investment options.

© Press Association 2008

Sign up to the Which? weekly money email

For the latest money saving news direct to your inbox sign up the weekly Which? Money email to receive top money saving tips, product reviews and the latest news every Wednesday.

Which? RSS news feed

For daily consumer news, subscribe to the . If you have an older web browser you may need to copy and paste into your newsreader. Find out more about RSS in the Which? guide to RSS news feeds.