Last updated 05:11, Friday, 14 November 2008

The rate at which workers’ take home pay is increasing fell sharply during October signalling tough times ahead for retailers.

Feeling the pinch: ’The continuing decline in the take home pay index is a clear sign that real incomes are falling,’ says Richard Cooper, marketing director for Vocalink. ‘This is a concern for UK retail sales’

Take home pay growth fell for the third month in a row during October to 3.4 per cent, the lowest level since February and down from 4 per cent in September, according to payments group VocaLink. The group warned that, with inflation running at 5.2 per cent according to the latest Consumer Prices Index, the decline in pay growth was eroding consumers’ spending power.

It said this was a worrying trend for the retail sector in the run-up to Christmas, with consumers already facing rising living costs, while credit was less available.

Richard Cooper, marketing director at VocaLink, said, “The continuing decline in the take home pay index is a clear sign that real incomes are falling.

“This is a concern for UK retail sales which are already on a downward trajectory.

“As consumers come under increasing pressure from high inflation and become less willing to spend savings as the recession starts to bite, it is likely that the retail sector will suffer further.”

The steep fall in take home pay growth seen during October was driven by the continuing decline of pay rises in the industrial sector.

The rate at which take home pay is rising for people working in industry has fallen from 5.4 per cent in July to just 2.4 per cent last month. Pay growth in the services sector has also been hit, dropping from 4.3 per cent in September to 4.1 per cent, as the sector contracts due to weaker consumer spending. VocaLink, which processes 90 per cent of the UK’s salaries, said the services sector had been the “engine of UK growth” during the past 10 years, but the credit crunch was now pushing it into recession.