VocaLink Take Home Pay Index Falls for the First Time Since May

LONDON -

- The Vocalink Take Home Pay Index Drops From 2% in August to 1.7% Wage Growth in September

- The Services Sector Index Drops to 2.1% Wage Growth, Down From 2.8% in August

- Manufacturing Take Home Pay Growth Edges Up by Just 0.1% but Represents Second Monthly Rise in Succession

The VocaLink Take Home Pay Index for September emphasised the fragility of the UK labour market, dropping to just 1.7% wage growth. This was down from August’s 2.0% pay growth figure which was the highest since February 2007. The turbulence of the wage growth figures is interpreted as a sign that even as the UK pulls out of recession, the labour market remains delicate.

The reason for the fall lies within the services sector. Having risen sharply in August by 0.9% to 2.8% pay growth, the VocaLink services index lost most of this increase in September, dropping to 2.1% wage growth. However, the medium term trend is still positive with the services sector rising steadily since it bottomed out in the first half of 2009 when it fell to just 1.0% wage growth in May. Failure to maintain the month-on-month upward trend is an indication that companies remain cautious about discretionary pay rises.

Yet again, the VocaLink manufacturing index remained weak, rising by just 0.1% pay growth. However, having now risen two months in succession, the increase is seen as a very early sign of improvement for the manufacturing sector as the inventory cycle starts to turn. This was fuelled by the rate of destocking in the economy significantly slowing over the last few months, the various scrappage schemes across the world aiding car manufacturers, and export markets benefitting from a weak pound.

Mark Chapman, marketing director at VocaLink, said: “The dip in the VocaLink Take Home Pay Index in September demonstrates the ongoing weakness of the labour market despite early signs of recovery across the economy. Even though take home pay growth appears to be on a generally upward trend after the lows seen in the first half of this year, it seems clear that it will remain weak for some time.”

Douglas McWilliams, chief executive of economics consultancy cebr, said: “The implication of weak underlying pay growth as indicated by the VocaLink Take Home Pay Index, combined with fixed inflation expectations, means that we expect the Bank of England to be able to continue its unprecedented monetary easing policy. In the face of fiscal consolidation to come, we do not see interest rates rising or quantitative easing being unwound until late 2010 at the earliest.”

VocaLink processes over 90% of UK salaries and the VocaLink Take Home Pay Index, established in 2004, provides the most timely and accurate disposable income data available in the UK. It is based on actual payments made to employees on a three-month moving average compared with the same Continuation measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.

Note to editors:

The VocaLink Take Home Pay Index is an important aspect of the UK’s economic performance and one of the components that drives the Bank of England’s Monetary Policy Committee’s (MPC) interest rate policy due to be announced on Thursday 8 October 2009.

Follow this link to read the full report, available from Thursday 8th October 2009 www.vocalink.com/en/AboutUs/Press%20room/Take%20home%20pay%20index/2009archive/Pages/2009takehomepayindexreports.aspx

(Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your Internet browser’s URL address field. Remove the space if one exists.)

Methodological notes

The average payment per employee is estimated from the total value of payments and the number of transactions and then expressed as an index for each month. The data uses a 3-month moving average to mitigate seasonal variations and looks at the year on year increase to provide a fair economic indicator that is also comparable with other data.

While the FTSE 350 sample is largely representative of the corporate economy in the UK, when comparing the VocaLink take home pay index data with, for example, government statistics, it is important to take into account the fact that some trends, which affect relatively larger firms differently, may have a disproportionate impact on the VocaLink take home pay index compared with the government’s official Average Earnings Index (AEI). For example, the VocaLink index does not include the public sector so when pay trends in the public sector are different from those in the private sector, this will affect the VocaLink index differently from the AEI.

The VocaLink Take Home Pay Index is based on take home pay data. It is therefore affected by changes in tax rates, changes in National Insurance contribution rates and changes in other employer payments or deductions. It is therefore a more representative indicator of disposable income for salary earners than data that does not take this into account.

The VocaLink Take Home Pay Index series Three month average annual change Year 2008 2009 Month Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep % % % % % % % % % % % % % VocaLink Take 4.0 3.4 3.5 2.9 2.7 2.4 2.0 1.6 1.1 1.3 1.3 2.0 1.7 Home Pay Index VocaLink 3.1 2.4 2.3 2.4 1.4 1.5 1.2 1.4 1.1 1.3 0.5 0.8 0.9 manufacturing index VocaLink 4.3 4.1 3.9 3.0 3.1 2.9 2.4 1.7 1.0 1.2 1.9 2.8 2.1 services index

About the VocaLink Take Home Pay Index

The VocaLink Take Home Pay Index tracks monthly take home pay levels in the UK. VocaLink is the processor for automated payments in the UK on behalf of Bacs, the UK body responsible for clearing and settlement. This includes all Direct Debit and Bacs Direct Credits, which account for over 90% of salary payments delivered into employees’ bank accounts. The VocaLink Take Home Pay Index is compiled using the data captured from the salary payments of 100 of the FTSE 350 companies.

VocaLink works with the centre for economics and business research (cebr) to deliver the analysis of this powerful and timely indicator of take home pay inflation to economists, analysts and the media. It is an important aspect of the UK’s economic performance and one of the components that drives the Bank of England’s Monetary Policy Committee’s (MPC) interest rate policy. The VocaLink Take Home Pay Index is also split by broad sector group into two sub-indices - the VocaLink Industry Index and the VocaLink Services Index.

About VocaLink

VocaLink is a specialist provider of payment services to banks, their corporate customers and Government departments. It processes domestic and international automated payments and provides ATM switching solutions. On a peak day, the VocaLink automated payment platform processes over 90 million transactions and over half a billion in a month. Its switching platform connects the world’s busiest ATM network of over 60,000 ATMs. Its Real-Time Payments platform provides the central infrastructure for the UK Faster Payments service. VocaLink is working with BGC (Bankgirocentralen) to provide outsourced processing for the majority of Sweden’s domestic payments.

Having pioneered electronic payments over 40 years ago, many of the world’s top banks and their corporate customers have grown to rely on VocaLink to meet their transaction needs. Its processing services offer banks reach throughout the Single Euro Payments Area (SEPA) and beyond; and are complemented by value-added services that leverage industry expertise and technical capabilities.

Please visit www.vocalink.com for more information

About cebr

Centre for Economics and Business Research ltd is an independent consultancy with a reputation for sound business advice based on thorough and insightful research.

Since 1992, cebr has been at the forefront of business and public interest research. Providing analysis, forecasts and strategic advice to major UK and multinational companies, financial institutions, government departments and agencies, trade bodies and the European Commission.

Cebr is recognised as one of the country’s leading independent commentators on economics and business trends. Its forecasts are used by a diverse audience of business people, policy makers and journalists; even the Treasury publishes its predictions for the UK economy.

Source: VocaLink Limited

For further information, please contact: Scott McLean, Hotwire, +44(0)20-7608-2500 or vocalinkuk at hotwirepr.com; Deborah Souter, VocaLink Limited +44(0)870-920-8651 or deborah.souter at VocaLink.com. If you would like to receive the monthly press release please e-mail vocalinkuk at hotwirepr.com or deborah.souter at VocaLink.com