Employers keep pay options open as inflation levels fall

More than half (58%) of employers are expecting to award pay rises of less than 3.5% this quarter, with a further one in five appearing to keep their pay options open.

According to the Chartered Institute of Personnel and Development (CIPD) and KPMG’s quarterly Labour market outlook survey, which was carried out in January, just 13% of employers expected pay levels to rise by more than 4%.

Dr John Philpott, chief economist at the CIPD, said: "On the face of things conditions in the labour market look conducive to moderate pay settlements this winter, with enough willing workers, especially migrants, to help employers withstand claims for inflation matching pay rises. But as out survey shows, the situation on the ground is more complicated.

"Aside from the commonly observed tendency for some pay settlements to track the RPI seemingly regardless of supply and demand, a growing proportion of employers report difficulty in finding recruits with the attributes they are looking for."

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The latest figures published by the Office for National Statistics (ONS) show that consumer price inflation (CPI) and the retail price index (RPI) both fell in January.

CPI was 2.7% in January, down from 3% in December due to a fall in transport inflation, lower telephone charges, cheaper European air travel and lower food price inflation. The RPI, meanwhile, which is used for negotiating salaries fell from 4.4% in December to 4.2% in January.