Firms have no intention of offering big pay rises in the New Year wage round as they battle high energy costs and strong competition, according to the head of Britain's biggest business lobby group.
As the pay talks draw near, Bank of England policymakers are getting worried workers will demand higher wages to cover soaring utility bills and rising inflation and have twice raised interest rates to keep price pressures in check.
But Richard Lambert, director general of the CBI, said companies were in no position to respond to big pay claims because margins were being squeezed by red tape, a strong pound and intense competition.
"There is a question over what might happen in coming months but I don't at all get the sense that the approach to pay settlements is going to change from what it's been in the last few years," Mr Lambert said ahead of the CBI's annual conference next week.
"That's obviously a concern at the Bank, but I don't see any sign of it."
Mr Lambert is better placed than most to know what policymakers are worried about, having served on the BoE's Monetary Policy Committee until March this year.
He said migrant workers had helped to keep firms' wage costs down, as had rising unemployment.
"But the real thing that has helped keep wage inflation pressures down is that companies have been heavily squeezed by energy costs and they've been forced to hold down all their other costs, including wage costs."
Pay surveys have shown settlements at around three per cent for most of this year, while the latest official data showed total earnings growth moderated to below four per cent. Mr Lambert said that while energy costs have come off their peak, prices were still "dramatically higher" than a year or two ago.
And a strong pound has piled additional pressure on export-dependent producers.
The CBI's own industrial trends survey would appear to contradict that statement, showing exports rose at their fastest rate in more than a decade this month.
But Mr Lambert said sterling's continuing strength had forced some members to shift production out of the UK to lower-cost countries.
