The latest quarterly Labour Market Outlook survey report from the CIPD, the professional body for HR and people development, suggests that wage inflation will fall in the year ahead.
The CIPD’s report suggests that median basic pay rises of just 1.2 per cent are expected in the 12 months to December 2016, compared with 2 per cent just three months ago.
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Gerwyn Davies, labour market analyst at the CIPD, comments: “The feedback we’re seeing from employers suggests that official forecasts for wage inflation for 2016 are too optimistic. A significant proportion of employers have already reported increases in employment costs as reasons why they have limited pay rises in the last 12 months to 2 per cent or less and looking ahead these cost pressures will only increase.
The low pay growth expectations for the year ahead can be partly explained by an increase in employment costs. There has been an increase in the proportion of employers citing pension auto-enrolment, increases to the National Minimum Wage and low inflation as key reasons why they haven’t been able to afford to pay their workers a basic pay rise of 2 per cent or above in the last twelve months.
However, while there is a risk that wage growth will see a sharper-than-anticipated slowdown this year, the quarterly survey of more than 1,000 employers shows that the softening in pay growth hasn’t been accompanied by pessimism about jobs growth.
This quarter’s net employment balance, which measures the difference between the proportion of employers who expect to increase and those that intend to decrease staff levels now stands at +21, compared with +28 three months ago. Despite this modest fall, the data suggests that employment growth will remain robust in Q1 2016.
For example, many organisations will see further increases in labour costs as a result of the National Living Wage from April this year and the introduction of the Apprenticeship levy from April 2017.
“With inflation expected to remain low during 2016 and labour supply remaining strong, we shouldn’t be surprised to see pay expectations staying low. Budgets remain tight so if there are any pay rises to be given, it’s likely that employers will target financial rewards towards high-performers and those with in-demand skills that are difficult to replace, rather than the workforce as a whole,” added Davies.