UK employers plan smaller pay increases for 2024, says CIPD survey

UK pay hike: British employers are anticipating smaller pay rises over the next year compared to previous estimates, marking the first such decline in nearly four years, according to a recent survey by the Chartered Institute of Personnel and Development (CIPD). The shift reflects a reduced willingness among employers to accommodate higher labour costs.

Employers in the UK are projecting an average increase of 4 per cent in basic pay over the next 12 months, down from the expected rise of 5 per cent in 2023 and late 2022. 

The adjustment comes amid a backdrop of recent decreases in energy prices, which have contributed to easing domestic inflation pressures and could potentially lead to lower interest rates later in the year, according to the Bank of England (BoE).

CIPD economist Jon Boys characterised this development as a pivotal moment in the UK labour market, reflecting broader shifts in economic dynamics.

The survey, conducted by YouGov with responses from 2,006 employers from January 2 to January 22, revealed that pay increases in the private sector and non-profit organisations remained consistent with the median projection.

However, public-sector employers forecast a 3 per cent pay increase and anticipate recruiting staff at the slowest pace since 2019.

Among employers surveyed, there was a notable increase in the proportion stating that they were financing pay rises through reduced staffing, rising from 12 per cent to 21 per cent. 

Meanwhile, the proportion absorbing higher wage costs in profit margins or general overheads decreased from 50 per cent to 37 per cent.

The BoE recently signalled the possibility of lowering interest rates from their near 16-year high of 5.25 per cent. 

However, annual wage growth exceeding 6 per cent has complicated this decision, as the forecasted decline in inflation to the 2 per cent target may prove to be temporary.

A BoE survey indicated that employers expect to raise pay by 5.2 per cent this year, underscoring the complex interplay between wage dynamics, inflation expectations, and monetary policy considerations in the UK economy.

(With Reuters Inputs)