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Within the next 12 months, British employers are expected to offer the smallest pay raises seen in two years.
The prediction, published in a recent survey by the Chartered Institute of Personnel and Development (CIPD) reveals a 3% pay boost, reflecting broader economic adjustments in the country. This forecast, down from 4% three months ago, aligns with the Bank of England’s (BoE) desire to see more moderate pay growth following its recent interest rate cut — the first in four years.
“Expected pay awards have fallen in all sectors since last quarter,” according to CIPD’s Labour Market Outlook. “They fell from 4% to 3% in both the private and voluntary sectors, and from 3% to 2.5% in the public sector. These falls were widely anticipated given that CPI inflation has now reached the Bank of England target of 2%.”
The projected wage growth will impact attraction and retention strategies, and highlights how economic uncertainties are shaping business decisions that affect the future of work.
Reuters reports that many workers are likely to feel continued financial strain despite this increase, having experienced higher inflation and stagnant real wages in recent years.
August saw the BoE cut interest rates after a prolonged period of increases that had pushed them to a 16-year high. Aligning pay growth with low inflation remains a principal concern for the bank, which keeps an eye on potential long-term labor market challenges.
Despite the recent pay projections, private sector pay (excluding bonuses) rose 5.6% in the three months leading up to May 2024 when compared to the previous year. This was still the smallest increase since June of 2022, but it was above the BoE’s low-inflation target, according to Reuters.
As inflation stabilizes and interest rates adjust, the economic forecast remains uncertain, prompting close monitoring by the Bank of England. Upcoming data on second quarter pay growth and inflation will provide further insights into the economy’s health.
The lowest projected pay increases in two years suggests the need for employers to adopt a more comprehensive approach to workforce management. By offering alternative benefits and prioritizing employee retention, businesses can be better prepared for economic uncertainties and ensure sustained growth in challenging labor market conditions.
