Expected pay growth hits three-and-a-half-year low

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Employers expect to be awarding median pay rises of just 1% in the year ahead, according to the latest CIPD Labour Market Outlook survey.

The survey of employers suggests that the UK economy will see a fall in real wages as pay fails to keep up with inflation. Employers’ median basic pay expectations in the 12 months to March 2018 have fallen to 1%, compared to 1.5% three months ago. This is lower than at any time since autumn 2013.

However, the CIPD’s data shows that the median pay forecast in the private sector remains at 2%, unchanged since summer 2012. In the voluntary sector it is 1%, down from 1.4% last quarter and the public sector remains at 1%, in line with the Government’s pay policy.

The data is based on responses from 326 private-sector employers, 116 in the public sector and 59 voluntary-sector organisations.

The research also found that demand for labour remains robust for the second quarter of 2017. The report’s net employment balance, which measures the difference between the share of employers expanding their workforce and the share of employers reducing their workforce, remains positive. However, it fell to +20 from the previous quarter’s figure of +23.

Gerwyn Davies, labour market adviser at the CIPD, said: “There is a real risk that a significant proportion of UK workers will see a fall in their living standards as the year progresses, due to a slowdown in basic pay and expectations of inflation increases over the next few months.”

He added: “The weak pay data is no surprise given the continued weak productivity growth in the UK. However, this is being exacerbated by many employers’ passive attitude towards workforce development and training, despite reporting hard-to-fill vacancies.

“At the same time, private-sector employers are proving stubbornly unresponsive to labour market changes that should, in theory, act to increase wages, such as the number of unfilled vacancies. The data suggests that the introduction and increase of various labour costs, such as the Government’s auto-enrolment scheme and the apprenticeship levy may be part of the explanation.

“It’s crucial therefore that we see a pick-up in employer investment in workforce skills development to support and sustain productivity growth.”

Sheila Attwood, pay and benefits editor at XpertHR, said: “The impact of the Government’s 1% pay policy in the public sector and slowing growth in the voluntary sector is dragging down the headline median rate of predicted pay awards.”

The CIPD’s prediction for the private sector matches XpertHR research, which found that the pay landscape for the private sector was settled at 2%, the level it has largely been for the past five years.

Labour demand is highest in the manufacturing-and-production sector (+38), according to the CIPD data, but these employers are also having particular difficulty filling vacancies.

The net employment balance in the public sector has turned negative (-6) since the previous report (+6) as more public-sector employers expect to reduce the size of their workforce in the second quarter of 2017, compared with the number who plan to increase it.

The survey also found that around two-thirds (68%) of organisations are planning to recruit employees in the next three months and almost half (45%) of vacancies in the manufacturing sector are for new roles, reflecting optimism amongst employers.

Further findings from the CIPD report include:

  • 56% of employers report currently having difficulty filling vacancies;
  • 18% of employers that report having difficulty filling vacancies do not fund any training activity;
  • 24% of organisations are planning to make redundancies in the next three months, modestly up from 22% last quarter; and
  • 12% of private-sector firms say the UK’s decision to leave the EU has led them to consider relocating some or all of their business operations abroad.

Alex Fleming, managing director of Adecco UK & Ireland, whose group sponsors the CIPD research, said: “Workforce planning continues to be vital as Brexit becomes a closer reality for the UK. Skills shortages continue to be evident in the UK labour market and employers need to be addressing this issue head-on with thorough planning.

“Interestingly, one in 10 firms indicate that the UK’s decision to leave the European Union has made them consider relocating some or all of their business operations to outside of the UK.”

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