The Chartered Institute of Personnel and Development (CIPD) has warned employers to keep pay rises in check or risk further economic slowdown and a sharp increase in unemployment.
Inflation figures out last week showed the consumer prices index reached 3.3% in May. The retail prices index (RPI), regarded as a better measure of the cost of living because it includes mortgage interest, rose slightly to 4.3%.
This led to the government urging restraint in pay settlements, concerned that higher demands could feed inflation and lead to a 1970s-style ‘wage-price spiral’, where companies hike up the cost of products to offset salary costs.
But John Philpott, CIPD chief economist, said the pain was more likely to be felt with a bigger rise in unemployment. “If there are inflation-matching pay hikes, the consequence will not be a damaging pay-price spiral of the kind the economy experienced in times past, but instead fewer jobs,” he said.
At the moment there is little sign of mounting pay pressure in the economy. Figures from Personnel Today’s sister publication Industrial Relations Services found that just 6.1% of pay awards were worth the same or more than RPI inflation. Pay settlement figures from manufacturers’ organisation the EEF for the three months to the end of May also revealed that the average level of pay settlements fell to 3%.
Philpott warned that the next few months were likely to be challenging for employers across the public and private sectors. “They will need to convey to staff the importance of responsible pay deals and ideally demonstrate that restraint will be observed at every level, from the board to the shop floor and office,” he said.
Unions have already indicated they are prepared to tear up multi-year agreements and demand higher pay for workers if the cost of living continues to rise.