The VocaLink take home pay index saw a big decline this month falling to 2.8% in January having been at 3.4% at the end of December. Figures reported last month for 2007 showed the lowest annual pay growth for two years and this trend looks set to continue in 2008.

- Take Home Pay Growth Fell by 0.6% in January, According to VocaLink

- Growth in Service Sector Fell by 1.1% Driving Overall Decline in the Index

- Manufacturing Sector Bucks Trend With Strongest Growth Since August 2007

The service sector sub index fell from 3.3% in December to 2.2% in January. This is likely to be as a result of the poor retail performance over the Christmas trading period as well as the effects of the credit crunch on bonuses in the finance sector.

In contrast, the manufacturing sub sector index saw an increase from 3.3% to 3.5%. This is the strongest growth the sector has seen since August 2007. When considered in conjunction with the Office for National Statistics' manufacturing average earnings index estimates, faster pay growth in this sector seems likely to continue in the next couple of months.

Richard Cooper, head of brand and communications at VocaLink said, "As the figures indicated in December 2007, low take home pay growth and a decline in consumer confidence contributed to poor Christmas trading for retailers. This month's VocaLink take home pay index shows the lowest growth rate since November 2006. This suggests more poor trading ahead as individuals take home pay continues to be stretched across mortgages, fuel and other essentials."

Douglas McWilliams, chief executive of cebr, the economics consultancy which analyses the take home pay index for VocaLink, said "We expect the Bank of England will continue its gradual easing of monetary policy this week following the recent adverse economic conditions. We expect to see a quarter point interest rate cut to 5.25%, particularly as the current low levels of unemployment have not yet led to a significant increase in wage growth."

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.