UK employers increased the amount of money they put aside for staff pay rises over the second half of last year, it has emerged.
Research by global advisory, broking, and solutions company Willis Towers Watson (WTW) found that average 2022 pay hike budgets grew from 2.9% in July 2021 to 3.2% in December.
If these budgets are fully spent, the average pay rise for UK employees would be a third greater this year than the 2.4% seen in 2021, according to the firm's Salary budget planning report.
The research highlighted that one of the main drivers for increasing pay budgets has been inflation. The closely-watched Consumer Prices Index rose by 5.1% in the 12 months to December, its sharpest jump in over a decade.
More than a third (37%) of UK businesses polled by WTW admitted they were concerned about inflation and the rising cost of supplies.
Another factor the research cites is contributing to increasing wages is a shortage of labour and increased competition for talent, with more than two-thirds (68%) of UK businesses admitting they were concerned about a tighter labour market during 2022.
WTW rewards data intelligence leader for Europe Paul Richards said there was little doubt that costs, wages and prices are going up this year.
He said a shortage of labour in some sectors was driving up demand for skilled workers while a push for growth in other industries was igniting a war for talent, as businesses compete to attract and retain employees who have more choice than at any point in recent years.
“Companies have responded quickly to these changes and it is rare to see anticipated pay budgets rise so sharply between July and December," said Richards.
"In certain key technology-focused industries, wage increases are even higher as employers try to take advantage of strong growth opportunities and a limited pool of highly specialised employees,” he added.
Globally, pay rises are anticipated to rise by 0.5% above inflation this year, according to the poll.
