PAYdata Blog, 10 February 2012
 

Yesterday (09 February 2012) the Bank of England’s Monetary Policy Committee (MPC) elected to hold interest rates steady at 0.5%.  Nothing new there – they have not moved since March 2009. 

Interestingly, they also decided to recommend, and the Chancellor has accepted, that they inject an additional £50 billion into the economy in the form of asset purchases, or as it is commonly called, Quantitative Easing (QE).  This brings the total level of QE since 2009 to £325 billion.

Part of their thinking for this move reflects their expectations for inflation dropping significantly in the short term.   Indeed, the MPC felt that weak growth and the associated downward pressure from economic slack could lead inflation to “undershoot the 2% target in the medium term”.  The additional QE aims to avoid that happening by providing additional stimulus to the economy.

Such matters raise an interesting question when viewed alongside the recently published results of January’s Paydata UK Reward Management Survey.  That reported that 86% of respondents expected pay awards in 2012 to be 3% or less.  Almost half (47%) thought they would be 2% or less.  This picture has not changed markedly over the last two years during which time settlements have been consistently outstripped by inflation.

So the question is, “Will pay settlements start to recover lost ground by exceeding inflation? And, if they do, when?” 

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