The VocaLink take home pay index increased to 3.4% in December from 3.2% in November. Despite this month's slight increase, 2007 has proven to be the weakest year for pay growth since the inception of the VocaLink take home pay index in 2005. Last year saw take home pay increase by just 3.5%, this figure falls considerably short of the 4.1% increase in 2006 and 4.6% in 2005.

December's take home pay growth has been predominantly driven by the manufacturing sector which increased from 2.9% in November to 3.3% this month. This is the first increase the sub-index has seen since June and is still a long way short of that month's peak of 4.8%. The sharp decline in the manufacturing index between July and December suggests that UK manufacturers may still face tough trading conditions. The service sector however remains unchanged from last month's 3.3%.

Richard Cooper, head of brand and communications at VocaLink said, "The VocaLink take home pay index annual figure for 2007 reflects the year's turbulent economic state. This climate looks set to continue into the new year as the global credit crunch, rising energy prices and a cooling housing market take their toll."

Douglas McWilliams, chief executive of cebr, the economics consultancy which analyses the take home pay index for VocaLink, said "Last month, the Bank of England cut interest rates in order to reassure financial markets and the consumer. With 2007 showing the lowest growth in take home pay for two years, we believe the Bank of England will cut interest rates again in the first quarter of 2008, to help the indebted consumer."

VocaLink processes over 90% of UK salaries and the VocaLink take home pay index is 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 measure a year earlier. It is affected by changes in tax rates, National Insurance and other employer payments or deductions.