Wage growth restraint call going unheeded

Efforts to keep wage growth under control are failing, Axa Investment Management (AIM) has said.

Efforts to keep wage growth under control are failing, Axa Investment Management (AIM) has said.

Both the chancellor of the exchequer, Alistair Darling, and the governor of the Bank of England, Mervyn King, championed the benefits of resisting pressure from workers to negotiate a wage increase earlier this month.

However, these calls fell on deaf ears if analysis conducted by AIM is anything to go by.

Chris Iggo, AIM's senior strategist, has noted that average earnings growth in April was at 60 basis points higher than inflation at 3.9 per cent - suggesting wages are already on the rise.

Although Mr Iggo said this was not disastrous, any worsening of the situation could cause significant complications.

"At that level, wage growth should not threaten the longer-term inflation outlook. However, should we begin to see higher wage settlements and a drift higher in wage growth, bringing inflation back down will be more difficult," he told the Financial Times.

"Modern central banking philosophy is, faced with an external price shock, if inflation is to be maintained at the target level, real wages have to decline to prevent the price shock being incorporated into long-term inflationary dynamics."

According to Mr Iggo, workers must understand that they might be putting their jobs in jeopardy if they fail to accept that their wages need to fall in real terms.