Pay freezes expected as inflation falls

19/02/2009

Personal incomes will be squeezed, as pay freezes are imposed by employers.

UK workers are expected to be hammered by falling inflation this year as the nation faces its worst recession in decades, the Daily Telegraph reports.

Experts told the newspaper that some salaries could even be cut in the downturn - putting potentially ruinous financial pressure on debtors already struggling with card, loan and mortgage repayments.

The analysis comes in the wake of latest official inflation figures, showing that one price rise benchmark dropped to just 0.1 per cent in January - the lowest level since 1960.

Many salary agreements are directly linked to inflation indexes.

John Philpott at the Chartered Institute of Personnel and Development, commented: "Pay freezes will be the case for some workers.

"We are seeing the biggest downward pressure on incomes in the post-War period."

Howard Archer, an economist at Global Insight, added: "With a significant number of pay agreements still linked to the annual RPI inflation level, the fall increases the likelihood that many workers will face a pay freeze this year."

Kevin Still, EuroDebt director, added: "Most of the UK workforce probably haven’t experienced deflation on this scale and having an annual review based upon inflation indices may result in many people having less take home pay and consequently less disposable income.

"With rises in Council Tax and water rates already signaled for the new tax year, this will pile more pressure on those already in financial difficulty. As a provider of debt advice, we would recommend that you review your household budgets to look at whether this is likely to tip the balance between a lean budget and an unmanageable one."

Tags; Income Worries and Debt, Recent Graduate Debt,

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