Average weekly earnings grew at 2.1 per cent in the year to November 2010 while RPI inflation hit 4.8 per cent in December, the month before VAT rises to 20 per cent. This means that over the course of 2010 most employees have seen a reduction of nearly 3 percentage points in the value of their earnings. Figures from the Office for National Statistics released on 19 January show overall earnings growth is consistent with the IDS measure of pay settlements which rose at the median from 2 to 2.2 per cent in the last months of 2010.

The real picture, however, is uneven with earnings growth stronger in some parts of the economy and weaker elsewhere. The latest Average Weekly Earnings figures show an annual rate of growth of 4.2 per cent in finance and business services, which makes up 20 per cent of employment in the economy. Earnings growth was also strong in manufacturing at 3.5 per cent, with 9 per cent of employment.

Earnings growth overall in the private sector was weak at 1.9 per cent because the higher growth in finance and manufacturing was offset by weak growth in the lower paying sector of wholesale, retail and hospitality (representing 23 per cent of employment). Here the annual rate of growth was a mere 1.2 per cent with the average weekly earnings flat at £295 a week between August and November, despite a rise in the National Minimum Wage of 2.2 per cent in October.

A further downward pressure on private sector earnings came in construction (with 5 per cent of overall employment), where weekly earnings were negative for the fourth month running. They fell by -1.3 in the year to November.

Meanwhile, average weekly earnings in the public sector (with 22 per cent of employment) grew at 2.2 per cent in the year to November, having been fairly flat at this level through 2010. Earnings here will probably fall back towards 1 per cent as more pay freezes kick in this year.

Private sector earnings may become stronger overall if pay growth returns in construction where there are several January 2011 increases coming through after previous pay freezes. For example, there are January 2011 rises of 4.7 per cent in the national industry agreement for engineering construction and 3 per cent in the plumbing industry.

Average weekly earnings (IDS website)