Take home pay is down, before rates increase

Thursday’s expected interest rate increase will put the squeeze on employees already suffering from a slowdown in average take-home pay, according to Voca, the company which processes all of the UK’s automated payments.

Its latest Take Home Pay Index suggests disposable income growth slipped to an annualised rate of 3.3% in October, the lowest for six months, and well down on the 5.2% figure seen in June and July.

Pushing down income growth has been a rise in unemployment, although the effects are not uniform. Pay growth in manufacturing, for example, is higher at 4.2% while services pay growth is down to 2.6%.

Voca says the unemployment increase is partly a function of the rise in employment overall, which means the labour market now has “spare capacity”.

Stuttering consumer confidence as a result of the reduced growth in take home pay will be offset over the next month by a continued strong housing market and an expected Christmas period increase in retail spending.

These latter factors are likely to be used by the Bank of England as part of any argument in favour of increasing interest rates later this week, despite the evidence unemployment is helping squeeze workers between faster rising living costs and less fast rising disposable income.

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