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UK employers agree average 2.5 percent pay rise in first-quarter - survey

City workers head to work during the morning rush hour in Southwark in central London April 16, 2014. REUTERS/Toby Melville

LONDON (Reuters) - British employers raised pay in the first three months of 2014 at the same pace as a year ago, although current low levels of inflation should improve workers' spending power, a survey showed on Thursday.

Employers from both services and manufacturing agreed a median 2.5 percent pay rise with staff in the first quarter, unchanged from the same period a year ago, according to Incomes Data Services (IDS).

While that was an improvement on 2.0 percent in the fourth quarter, pay deals during that period were dominated by retailers. They employ staff on salaries benchmarked to the national minimum wage, which increased 1.9 percent in October.

Retail price inflation, widely used as a reference for pay deals, fell in March to 2.5 percent, its lowest since the end of 2009. IDS said pay deals could soon run ahead of this measure for the first time in many years.

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"The main factor in the comparison with the cost of living is the fall in inflation, rather than any rapid acceleration in pay growth," said Ken Mulkearn, head of pay and research at IDS, a unit of Thomson Reuters. "However, stronger economic growth may add to upward pressures, and the fact that the national minimum wage is set to rise by 3 percent will likely have an influence."

Official data last week showed wages caught up with consumer price inflation (CPI) for the first time in nearly four years, helping the government to ward off charges of a cost-of-living crisis before next year's general election.

There were signs that pay will start to outpace CPI soon. In February alone, total growth in weekly earnings was 1.9 percent, while in March consumer prices rose 1.6 percent.

Median pay awards last outstripped retail price inflation in the three months to November 2009, IDS said. Also, the proportion of pay freezes halved to just 5 percent of settlements compared with last year.

The survey covered 107 settlements and 224,887 employees. Above-average pay deals were most common in aerospace, defence, chemicals and food processing.

(Reporting by Andy Bruce; Editing by Larry King)