UK employers are bracing for a decrease in basic pay increase expectations for the first time since the onset of the pandemic, according to the latest CIPD Labour Market Outlook.

The report highlights the challenges faced by employers as they navigate the delicate balance between tightening budgets and employee aspirations for higher wages in the midst of a persistent cost-of-living crisis.

Having remained steadfast at 5 percent for over a year, median expected basic pay increases for the upcoming 12 months have now dipped to 4 percent.

This decline is evident across sectors, with the private sector witnessing a drop from 5 percent to 4 percent, and the public sector experiencing a more pronounced decrease from 5 percent to 3 percent.

A shift in workforce planning dynamics

The CIPD’s findings also unveil a shift in workforce planning dynamics, with fewer employers anticipating staff growth compared to previous quarters. The report indicates that while a third (33%) of employers plan to increase staff levels over the next three months, 10 percent intend to reduce overall staffing. This trend is coupled with an ongoing challenge of hard-to-fill vacancies, with 38 percent of employers reporting such difficulties and 21 percent expecting significant problems in filling roles over the next six months.

Jon Boys, senior labour market economist for the CIPD, emphasises the need for organisations to invest in workforce development and technology to address skills gaps, enhance productivity, and foster sustained growth. Boys notes, “To see a sustained return to growth, there needs to be a real focus on boosting productivity by investing in workplace skills and technology.”

The report suggests a potential correlation between the declining pay expectations and employers’ strategies for managing higher wage costs. Interestingly, early data indicates that fewer employers (37%) are willing to accept lower profits, absorb costs, or endure higher overheads to fund increased wages compared to the past year.

Benefits packages are key

The CIPD underscores the importance of businesses communicating their broader benefits package to employees and improving job quality, especially if base pay increases are under consideration. With the cost-of-living crisis still impacting many workers, alternative measures, such as offering flexible working arrangements, are recommended to alleviate commuting or childcare costs.

As the UK labour market undergoes a pivotal moment, the CIPD emphasises the need for employers to view the workforce as a critical driver of productivity and profitability. Investing in skills, training, and people management is deemed crucial for organisations to weather economic uncertainties and ensure sustainability and growth. The CIPD Labour Market Outlook report is based on a survey of 2,006 employers conducted in January 2024, capturing insights into pay approaches, staffing levels, and vacancy challenges.

 

 

 

 

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 the 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.