Private sector pay settlements are likely to rise this year – possibly to about 3 per cent – but they will remain below inflation, making it the second year in a row in which wages have lagged behind the cost of living, according to a leading research group.

Economists fear that below-inflation wage rises, coupled with public spending cuts and the rise in value added tax and other costs, will hold back demand and limit the speed of recovery, particularly in the first half of the year.

Incomes Data Services, the pay analyst, forecasts a widening gap between workers in the public sector, who face wage freezes, and those in the private sector, where pay rises may start to accelerate.

Across the economy, the median pay award rose to 2.2 per cent in the three months to last November, the highest seen in the aftermath of the recession, according to The median had been 2 per cent for most of last year.

Pay rises in manufacturing rose to 2.7 per cent and those in private sector services to 2.2 per cent. The latest figures are based on 66 pay reviews covering 1.9m employees.

“An early look at January 2011 pay awards suggests settlements may be higher in the private sector during the coming year, with 3 per cent emerging as a key figure for decision-makers and union negotiators as inflation persists at relatively high levels,” IDS said.

Wednesday’s strike at the Heinz factory near Wigan was called off after management tabled an improved offer of a 3.5 per cent rise in the first year, plus a £200 one-off payment and a 3.4 per cent rise in the second year. Shift workers would get a further 0.6-1.6 per cent.

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