UK employers’ expectations for pay growth over the next year have dropped to their lowest level since mid-2022, according to the latest Labour Market Outlook report from the Chartered Institute of Personnel and Development (CIPD).

The report shows that anticipated wage growth has fallen from 4 percent to 3 percent this quarter, marking a significant cooling trend after holding steady at 5 percent throughout 2023 before dipping to 4 percent at the start of this year.

The report, which surveys 2,000 UK employers on their pay, hiring, and redundancy plans, indicates that median basic pay increase expectations have decreased across all sectors. The private and voluntary sectors saw a reduction from 4 percent to 3 percent, while the public sector experienced a decline from 3 percent to 2.5 percent.

Despite recent public sector pay deals exceeding expectations, the CIPD stresses the need for a long-term focus on job quality and workforce planning to address the ongoing cost-of-living challenges. James Cockett, senior labour market economist at the CIPD, noted that while lower inflation might ease pressure on pay rises, many workers still feel financially strained compared to a few years ago. “Providing flexible working, offering benefits that boost take-home pay, and improving job quality are crucial for employers aiming to support and retain staff,” Cockett said.

The report also highlighted other key trends in the employment market:

  • The net employment balance, which tracks the difference between employers planning to increase and decrease staff levels, continues to decline. It stood at +18 this quarter, down from +19 last quarter and +22 the quarter before.
  • Two-thirds (66%) of employers plan to recruit in the next three months, with the public sector showing the highest recruitment intentions at 81 percent.
  • Hard-to-fill vacancies remain a significant issue, with 37 percent of employers reporting difficulties. This figure is particularly high in the public sector, where nearly half (48%) struggle to fill positions, compared to 34 percent in the private sector.

As the Government introduces proposals under its ‘Plan to Make Work Pay,’ the CIPD urges careful consideration to ensure that these initiatives support rather than hinder employment opportunities. The organisation calls for close consultation with employers to ensure that changes to day-one rights and probation periods benefit both workers and businesses.

Public Sector Under Pressure

The public sector, despite having the highest recruitment intentions, also faces the greatest challenges in staffing. High rates of hard-to-fill vacancies, combined with anticipated difficulties in future recruitment, point to a sector under significant strain. Nearly half of public sector employers (48%) planned pay decisions for the third quarter of 2024, expecting increases of just 2.5 percent. However, the Chancellor, Rachel Reeves, later confirmed pay rises between 4.75 percent and 6 percent, surprising many in the sector.

Cockett remarked, “Many public sector employers did not foresee the level of pay rises implemented by the Government for the remainder of 2024. While this may help attract candidates, strategic workforce planning and investment in skills, training, and technology are essential for long-term success and economic growth. This approach will be vital for all organisations as they prepare for the future.”

The findings underscore the need for a holistic approach to workforce management, particularly in the public sector, to address ongoing recruitment challenges and improve overall job quality.

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Amelia Brand

Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.