Basic pay award expectations for quarter one of 2019 have increased from 2% to 2.5% in the private sector, according to research by the Chartered Institute of Personnel and Development (CIPD) and the Adecco Group; this is the highest recorded figure since the research's inception in 2012.
The Labour market outlook report, which surveyed 1,254 employers, also found that in the public sector, basic pay award expectations for quarter one have fallen from 2% to 1.1%.
Jon Boys, labour market economist at the CIPD, said: "While the private sector is more willing to spend money in response to recruitment and retention challenges, the public sector's hands are tied. Employers will need to think far more creatively about how they attract, develop and retain their staff to boost both skills and productivity."
For 42% of those employers that expect to increase pay by 2% or more, inflation is the driving factor, while 38% cite the need to align with the growing rate of pay elsewhere.
Two-thirds (66%) of private sector employers have increased starting salaries in response to recruitment challenges; this is more than the 56% of employers that did this in quarter four of 2018. In comparison, 27% of public sector organisations are taking this approach, a decrease from the 43% recorded as doing this in the summer of 2018.
A further 62% of private sector respondents and 34% of public sector employers are raising overall salaries to tackle retention pressures. However, 43% believe it is too hard to tell how pay will change or that this would depend on organisational performance.
Boys added: "If we're to see a sustained improvement to pay, we must look at what is preventing individuals from being more productive at work. If we can improve how managers train, develop and apply peoples' skills at work, our businesses will be much more productive. Productivity is 22% lower than it would have been if the pre-financial crisis trend had continued. As a result, pay growth is woefully behind."
Alex Fleming, country head and president of staffing and solutions at the Adecco Group UK and Ireland, said: "Raising wages to attract or retain staff is certainly one option and a short-term fix, but the employers that will excel in our current environment will be the ones that think more holistically about their talent strategies.
"Organisations that identify the skills and traits they need to prosper, streamlining their processes for attracting talent and building an environment that allows talent to thrive, will be the ones [that] succeed."
