Weak market conditions are acting as a check on workers' pay rises in manufacturing and service industries, according to the CBI.

Bosses said a squeeze on both profits and prices was holding back pay awards with settlements broadly equal across both sectors.

According to the CBI, pay rises in the manufacturing industries averaged at 2.8 per cent across the three months to July, just behind the service sector where the figure was 3 per cent.

The picture contrasts with that of a year ago when service sector pay awards outstripped manufacturing with settlements averaging at 3.6 per cent against 2.6 per cent.

CBI chief economic advisor Ian McCafferty said: "The days of noticeably higher service sector settlements appear to be over for now, with earnings across the private sector now broadly equal."

Both sectors said low profits and constraints on pricing were key factors keeping wage settlements down with more service providers citing the pressure on profits than a year ago.

The study found that 28 per cent of service sector firms said low profits were keeping pay awards down against only 22 per cent a year ago, whereas in manufacturing the levels were similar to last year's - at 39 per cent against 40 per cent.

Both types of company said a squeeze on prices was a "very important" factor holding back pay rises.

While service sector firms appeared to be more conscious of pricing pressure, the pattern was reversed in manufacturing, falling from 44 per cent to 40 per cent.

Mr McCafferty said: "Increasingly difficult selling conditions have dragged down pay settlements throughout the service sector."

Monday September 29, 2003