Pay awards have remained at their lowest level for four years as official annual inflation levels increased by more than expected in January 2025.
The median basic annual pay rise for the three months to the end of January stood at 3%, the second consecutive rolling quarter at this level, after Brightmine revised its figure for the three months to December 2024.
This is the lowest median pay settlement recorded since December 2021, signalling a shift toward more restrained pay increases after elevated awards during the period of higher inflation.
New data from the Office for National Statistics (ONS) yesterday showed annual average earnings increased to 5.9% in the quarter ending in December 2024 – a rise of 0.3% from the previous three-month period and the quickest increase since April 2024. Annual earnings growth including bonuses climbed from 5.5% to 6%.
Pay awards and inflation
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The Office for National Statistics published the UK’s annual inflation figures this morning. The consumer prices index (CPI) for January stood at 3% – a 10-month high – up from 2.5% for the year to December.
Economists had been expecting an increase, but not to this extent. The ONS said the rise was driven in part by airfares, food and private education fees.
The CPI measure including owner-occupier housing costs (CPIH) stood at 3.9%, up from 3.5%. Meanwhile, the retail prices index (RPI), the inflation measure often cited by trade unions, was 3.6%, up 0.1 percentage points compared to December.
Grant Fitzner, ONS chief economist, said one of the key reasons behind the rise in inflation was a smaller than average fall in January retail prices, following slower price rises in December.
If inflation continues to rise, it will increase pressure on employers for higher pay awards.
Sheila Attwood, senior content manager, data and HR insights at Brightmine, said: “January’s pay trends data confirms a clear shift toward more restrained pay awards as businesses respond to ongoing economic pressures.
“As we move further into 2025, the impact of rising national insurance contributions could add further complexity to pay decisions and workforce planning.”
Brightmine’s latest labour turnover data shows that rates have remained largely unchanged in 2024 compared to the previous year. The median voluntary turnover rate for the 2024 calendar year stood at 10.3%, while total turnover reached 14%. This stability follows a peak in levels in 2022, where the total labour turnover reached a median of 22.5%, highlighting the significant workforce shifts that have since stabilised.
Attwood added: “While labour turnover rates have stabilised, the combination of pay awards stalling and ongoing concerns about workload and career progression could increase resignations later in 2025 – especially if inflation remains a pressure on real wages. Employers may need to balance cost control with competitive pay and other retention measures to avoid unwanted staff losses.”
Despite this stability, 36.1% of organisations are concerned that turnover levels are too high. Key drivers of employee turnover include limited opportunities for promotion or professional development, cited by over half of respondents (58.3%), followed by uncompetitive pay and benefits (49.6%) and excessive workload (28.3%).
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