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UK employers plan to rein in wage increases in 2016

[LONDON] British employers expect to raise wages this year by far less than the Bank of England forecasts earnings will increase, due to low inflation and rising employment costs, an industry survey showed on Monday.

Employers plan to increase their staff's average basic pay by just 1.2 per cent in the 12 months to 2016, down from a planned rise of 2 per cent in a survey three months ago, the Chartered Institute of Personnel and Development said.

This is the lowest wage rise planned in more than two years, and the CIPD - a professional body for human resources staff - said it raised doubt about BoE forecasts that average earnings would rise by 3 per cent by the end of 2016. "The feedback we're seeing from employers suggests that official forecasts for wage inflation for 2016 are too optimistic," CIPD labour market analyst Gerwyn Davies said.

Near-zero inflation, greater pension costs, a big rise in the minimum wage and a new government levy to fund apprentices all limited employers' willingness to offer pay rises for the average employee, the CIPD said.

The Confederation of British Industry urged finance minister George Osborne on Monday not to introduce any measures that push up employment costs further in his annual budget next month. "In the context of a more fragile global economy ... any more could tip investment decisions, could tip growth plans, could tip job creation," CBI Director-General Carolyn Fairbairn said.

CIPD said employers still planned to hire strongly in the first three months of 2016.

Last week the CBI forecast earnings growth of 2.2 per cent for 2016 and 2017, while a BoE survey showed firms planned to raise wages by 2.8 per cent this year, up from 2.4 per cent in 2015.

The BoE is keeping a close eye on wage growth as it mulls its first interest rate hike in nearly a decade, and has thus far kept its powder dry thanks to sluggish wage growth and inflation which has hovered around zero for months.

Official wage data due on Wednesday are forecast to show British average earnings rose just 1.9 per cent in the last three months of 2015, down from 3 per cent in the middle of the year, despite record employment levels.

The official average weekly earnings measure - which the BoE and CBI forecast - does not necessarily track pay rises exactly, due to changes in the mix of jobs and hours worked.

The CIPD forecast was based on polling more than 1,000 human resources staff and employers, whose responses were weighted to reflect Britain's mix of private, public and voluntary sector employers.