Employers anticipate median pay rises of just 1%

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Median basic pay expectations to March 2018 have fallen to 1%, compared to 1.5% three months ago

Employers anticipate awarding median pay rises of just 1% in the year ahead, according to the CIPD and Adecco Group’s Labour Market Outlook.

The survey of more than 1,000 employers found that their 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 during the past three and a half years.

Despite this, the survey finds 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 reducing their workforce, remains positive.

However, it has softened slightly since the previous report, down to +20 from the previous quarter’s figure of +23, which is consistent with a modest deterioration over the past two years.

Gerwyn Davies, labour market adviser at the CIPD, highlighted the “serious implications” of economic insecurity. “It is good news that employment confidence remains positive, with sectors like manufacturing and production proving particularly buoyant,” he said.

“The bad news is that there is a 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. This could create higher levels of economic insecurity and could have serious implications for consumer spending, which has helped to support economic growth in recent months."

More than half (56%) of employers report they currently have difficulty filling vacancies, and 12% of private sector firms say the UK’s decision to leave the European Union has led them to consider relocating some or all of their business operations abroad.

Alex Fleming, managing director at Adecco UK & Ireland, said skills shortages will need to be combatted. “Workforce planning continues to be vital as Brexit becomes a closer reality for the UK,” he said. “Skills shortages continue to be evident in the UK labour market and employers need to be addressing this issue head-on with thorough planning.”

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