Pay settlements for workers in Britain’s hard-pressed manufacturing sector have fallen to their lowest level for any quarter since 1987, according to a key survey of wage agreements.

The Engineering Employers’ Federation, whose members are largely manufacturers, reported average level of pay rises agreed in the first three months of this year at 1.7 per cent, well below inflation as measured by the Consumer Price Index.

Moreover, the number of companies freezing pay rose to nearly 45 per cent of all reported settlements, again the highest level since the survey began in 1987. However, the number reporting that they had deferred their pay settlements in the three months through March fell slightly to just under 20 per cent of all settlements.

The woes of the UK’s manufacturing sector stand out, even amid a generally bleak economy. According to the Office for National Statistics, manufacturing output suffered a decline of 6.2 per cent in the first quarter of this year from the last quarter in 2008, contributing to a much larger than expected 1.9 per cent contraction in national income.

The average manufacturing pay settlement in March was a wage hike of 0.7 per cent, down from 1.9 per cent in January - the largest single month for wage pacts - and 1.9 per cent in February.

David Yeandle, head of employment policy at the EEF, said: “This continued squeeze on pay demonstrates very starkly not just the severe impact that the economic downturn is having on manufacturers, but the efforts companies, employees and their representatives are making to avoid redundancies.”

However, the full survey results do highlight disparities; almost a quarter of all contracts rose between 2.0 and 3.0 per cent and nearly 5 per cent rose by 4.0 per cent, in contrast to the just over half of all settlements which were between zero and two per cent.

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