VocaLink Take Home Pay Index Takes a Tumble as we Enter 2010

LONDON, February 4 /PRNewswire/ --
- The VocaLink Take Home Pay Index Starts the Year by Dropping to 1.4% from 1.9% in December, Reflecting VocaLink's Long-Term Prediction of Stagnating Wage Growth
- After Remaining Steady for Two Months at the Highest Level it Achieved in 2009, the VocaLink Manufacturing Index Begins 2010 by Falling to 1.1% from 2.0% in December
- Services Sector Pay Begins the Year at Virtually One Half of the Value From the Same Month a Year Ago
The VocaLink Take Home Pay Index for January reflects the current challenges facing the UK labour market as we enter 2010. The Index has reversed its gains from December to drop back down to 1.4 per cent in January. The manufacturing index has been a significant contributor to the fall, plunging 0.9 percentage points at the start of year, while the services index has dropped from 1.7 per cent in December to 1.6 per cent, beginning 2010 at nearly one half of the value from the same month in 2009.
Despite the recent news that the UK economy stopped contracting last quarter after six consecutive quarters of negative growth, the bounce back for the fourth quarter of 2009 fell well short of industry expectations and has served to feed through into even weaker pay growth. Without any indications of a strong economic upturn on the horizon, spare capacity in the economy is preventing pay growth from escaping the range of 1.0 to 2.0 per cent where the VocaLink Take Home Pay Index has sat for the past eleven months.
With a question mark hanging over the speed of economic recovery, the impending General Election appears to be adding further uncertainty in the market which means employers are less likely to increase employment and compensation. As pay growth is squeezed, consumers are also feeling the pinch from the temporary VAT cut being reversed at the start of the year. In response, inflation rates are likely to jump from an already nine month high.
Marion King, Chief Executive Officer at VocaLink, said: "As we enter 2010, The VocaLink Take Home Pay Index reflects the trends of the past 12 months for low or falling wage growth. Although we are now technically out of the recession in the UK with the last official GDP estimate, pay growth rates are not going to return to those pre-recession levels for quite some time. Stagnating salaries combined with the restoration of the 17.5 per cent VAT rate are going to have a real impact on households' spending power."
Douglas McWilliams, chief executive of economics consultancy cebr, said: "The recovery - which is already slower both in magnitude and timing relative to expectations - is likely to be sluggish and fragile. The implication is that labour market conditions will remain weak for quite some time. Following the VAT cut reversal, we expect a period of rising inflation without a corresponding increase in pay growth which will further limit disposable income for the foreseeable future."
VocaLink processes over 90% of UK salaries and the VocaLink Take Home Pay Index, established in 2004, provides the most timely and accurate disposable income data available in the UK. It is based on actual payments made to employees on a three-month moving average compared with the same Continuation measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.
Note to editors:
The VocaLink Take Home Pay Index is an important aspect of the UK's economic performance and one of the components that drives the Bank of England's Monetary Policy Committee's (MPC) interest rate policy due to be announced on Thursday 4 February 2010.
Follow this link to read the full report, available from Thursday 4 February 2010 - http://bit.ly/tsJyX
Methodological notes
The average payment per employee is estimated from the total value of payments and the number of transactions and then expressed as an index for each month. The data uses a 3-month moving average to mitigate seasonal variations and looks at the year on year increase to provide a fair economic indicator that is also comparable with other data.
While the FTSE 350 sample is largely representative of the corporate economy in the UK, when comparing the VocaLink take home pay index data with, for example, government statistics, it is important to take into account the fact that some trends, which affect relatively larger firms differently, may have a disproportionate impact on the VocaLink take home pay index compared with the government's official Average Earnings Index (AEI). For example, the VocaLink index does not include the public sector so when pay trends in the public sector are different from those in the private sector, this will affect the VocaLink index differently from the AEI.
The VocaLink Take Home Pay Index is based on take home pay data. It is therefore affected by changes in tax rates, changes in National Insurance contribution rates and changes in other employer payments or deductions. It is therefore a more representative indicator of disposable income for salary earners than data that does not take this into account.
If you would like to receive the monthly press release please e-mail vocalinkuk@hotwirepr.com or deborah.souter@VocaLink.com
The VocaLink Take Home Pay Index series Three month average annual change Year 2009 2010 Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan % % % % % % % % % % % % % VocaLink Take Home Pay Index 2.7 2.4 2.0 1.6 1.1 1.3 1.3 2.0 1.7 1.7 1.4 1.9 1.4 VocaLink manufacturing index 1.4 1.5 1.2 1.4 1.1 1.3 0.5 0.8 0.9 1.5 2.0 2.0 1.1 VocaLink services index 3.1 2.9 2.4 1.7 1.0 1.2 1.9 2.8 2.1 1.8 0.9 1.7 1.6

About the VocaLink Take Home Pay Index
The VocaLink Take Home Pay Index tracks monthly take home pay levels in the UK. VocaLink is the processor for automated payments in the UK on behalf of Bacs, the UK body responsible for clearing and settlement. This includes all Direct Debit and Bacs Direct Credits, which account for over 90% of salary payments delivered into employees' bank accounts. The VocaLink Take Home Pay Index is compiled using the data captured from the salary payments of 100 of the FTSE 350 companies.
VocaLink works with the centre for economics and business research (cebr) to deliver the analysis of this powerful and timely indicator of take home pay inflation to economists, analysts and the media. It is an important aspect of the UK's economic performance and one of the components that drives the Bank of England's Monetary Policy Committee's (MPC) interest rate policy. The VocaLink Take Home Pay Index is also split by broad sector group into two sub-indices - the VocaLink Industry Index and the VocaLink Services Index.
About VocaLink
VocaLink is a specialist provider of transaction services to banks, their corporate customers and Government departments. It processes domestic and international automated payments and provides ATM switching solutions. On a peak day, the VocaLink automated payment platform processes over 90 million transactions and over half a billion in a month. Its switching platform connects the world's busiest ATM network of over 60,000 ATMs. Its Real-Time Payments platform provides the central infrastructure for the UK Faster Payments service. VocaLink is working with BGC (Bankgirocentralen) to provide outsourced processing for the majority of Sweden's domestic payments.
Having pioneered electronic payments over 40 years ago, many of the world's top banks and their corporate customers have grown to rely on VocaLink to meet their transaction needs. Its processing services offer banks reach throughout the Single Euro Payments Area (SEPA) and beyond; and are complemented by value-added services that leverage industry expertise and technical capabilities.
Please visit http://www.vocalink.com for more information
About cebr
Centre for Economics and Business Research ltd is an independent consultancy with a reputation for sound business advice based on thorough and insightful research.
Since 1992, cebr has been at the forefront of business and public interest research. Providing analysis, forecasts and strategic advice to major UK and multinational companies, financial institutions, government departments and agencies, trade bodies and the European Commission.
Cebr is recognised as one of the country's leading independent commentators on economics and business trends. Its forecasts are used by a diverse audience of business people, policy makers and journalists; even the Treasury publishes its predictions for the UK economy.
For further information, please contact: Suzanne Hewitt, Hotwire, +44(0)20-7608-2500 or vocalinkuk@hotwirepr.com; Deborah Souter, VocaLink Limited, +44(0)870-920-8651 or deborah.souter@VocaLink.com