Pay rises are set to remain modest in spite of indications that more employers expect to award staff increases of at least 4%, research has found.
The latest quarterly Labour Market Outlook survey of 1,000 employers, by the Chartered Institute of Personnel and Development and professional services firm KPMG, said the median expected increase remains steady at 3% (2.5% in the public sector).
However, with employer optimism rising, the threat of higher pay inflation is greater than it has been for some time amid signs of mounting recruitment difficulties.
Dr John Philpott, CIPD chief economist, said: “Substantial growth in the supply of labour in recent years, due mainly to increased immigration, has helped the economy avoid the wage spiral some had feared in the wake of the recent surge in the cost of living.
“But although this risk may subside in the coming months as the rate of price inflation moderates, a new threat is emerging in the shape of increased recruitment difficulties.”
A combination of greater employer optimism, increased recruitment activity and mounting recruitment difficulties may soon become a bigger concern to the Monetary Policy Committee than any possible knock-on effects of recent higher inflation, Philpott said.