Pay awards in real terms could decrease for a “prolonged period” after inflation overtook typical pay settlements in April, the first time all three inflation measures have outstripped the median pay award in 19 months.
The Office for National Statistics (ONS) published last month’s inflation figures this morning showing that the consumer prices index (CPI) in the year to April has increased to 3.5%, leaping up from March’s 2.6%.
CPI including owner-occupiers’ housing costs (CPIH) increased from 3.4% to 4.1%, while the retail prices index (RPI), the trade unions’ preferred measure, rose from 3.2% in March to 4.5% in April.
Meanwhile, new data released by Brightmine today, which analysed 136 pay awards from employers the three months to end of April, showed that median pay award holding firm at 3%, for the fifth consecutive month. The data covers pay review outcomes for more than 309,000 UK employees.
Brightmine said, however, that there are signs of pay settlements softening, with almost half of all awards now falling below 3%.
Sheila Attwood, HR insights and data lead at Brightmine, said: “The jump in CPI inflation last month sees a turnaround in fortunes for employees, with price rises outstripping pay increases for the first time since September 2023.
“With inflation not expected to peak until the third quarter of the year, and all signs pointing to pay rises either remaining at 3% or falling slightly, a prolonged period of a real terms fall in pay is on the cards.”
Experts and the Bank of England had expected CPI inflation to increase in “Awful April”, but the 3.5% figure – which was driven by higher utility, food, vehicle and airfare prices – exceeded most forecasts of 3.3% or 3.4%.
Brightmine said that last month’s increase in employers’ national insurance contributions and other costs had placed fresh strain on pay decisions, despite positive news showing that the economy grew by 0.7% in the winter, a stronger-than-expected rebound after months of stagnation. However, this growth is not yet reflected in pay outcomes and may be masking “broader economic fragility”.
Attwood explained: “April’s figures are critical in setting the tone for pay deals throughout the year. And while the latest economic data show signs of growth, the subdued pattern of pay settlements indicates that many employers continue to approach wage decisions with caution in the face of ongoing cost pressures that will continue into the second half of the year.
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“Pay awards are stable, but beneath the surface, many businesses are opting for lower rises and our headline median could therefore fall in the months ahead.”
The private sector recorded a median pay award of 3% in the 12 months to the end of April 2025, in line with the overall trend, but the public sector median is higher at 5%, mainly due to legacy deals agreed earlier in the pay cycle.
Brightmine, formerly XpertHR, said that early indications suggest that public sector settlements in 2025 will be more closely aligned with the private sector.
In a matched analysis across the economy, it found 78% of pay deals were lower than the previous year, while just 3% were higher. One in 20 deals were pay freezes.
Last week, the ONS said annual growth in employees’ average regular earnings (excluding bonuses) stood at 5.6% in the three months to March 2025. This was down from 5.9% the previous month and the lowest figure since November.
In its March forecasts released alongside the Spring Statement, the Office for Budget Responsibility predicted that CPI inflation would increase to 3.7% in the third quarter of 2025 before easing.
TUC general secretary Paul Nowak said: “Today’s unwelcome rise in inflation – driven by higher energy and water bills – is painful but not unexpected. The Bank of England must stay the course and continue to cut interest rates to relieve pressure on households. High rates have already choked growth and hit businesses hard. Lowering them will put more money in people’s pockets and help them spend in their local economies.”
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