Employers forecast pay rises of 2% in 2018

Employees are on course for yet another year of slow pay growth, according to research from XpertHR.

Private sector employers are planning to increase pay by just 2% over the coming year, the same level of increase made over the past 12 months.

While three-quarters (77.5%) of employers are planning to increase pay over the next year, the majority (65.1%) expect this to be at the same level as over the past year. Just one-fifth (20.5%) of employee groups are on course for a higher pay award.

However, it is encouraging that only 5.4% of employee groups are expected to have their pay frozen – down from the 7.5% that saw pay freezes over the past year.

With retail prices index inflation – the key measure of price rises referred to by employees – sitting at 3.9% on the latest data, prices are rising almost twice as fast as pay. XpertHR has recorded inflation outstripping pay awards since autumn 2016.

Employers may find that they are under pressure to make higher pay awards than currently anticipated. Recruitment and retention factors, as well as competitor pay rates and inflation, are expected to put pressure on companies to raise pay award levels. However, increasing pension costs (partly due to the increase in April 2018 in contribution levels under pensions auto-enrolment) and the ability of the company to afford higher increases will provide downward pulls on reward budgets.

XpertHR pay editor Sheila Attwood said: “Despite pressures from rising inflation and a tight labour market, employers are continuing to be cautious when making pay awards. All signs point to this situation prevailing over the next year, and pay awards remaining muted at around 2%. Unless there is increased pressure from employees, employers are likely to continue to keep rises for the majority subdued.”

The public sector is excluded from the analysis, as pay awards are heavily influenced by Government policy. However, given the recent relaxation of the policy in relation to police and prison staff, some improvement in pay award levels in the public sector can be expected over the next year. Pay awards in the public sector have been worth a median 1% over the past year.