3% pay rises in UK for third year

British employers are planning to maintain this year’s average 3% salary increases in 2014 for the third year running, according to research by Towers Watson.

Its biannual Salary budget planning report, which surveyed 10,500 employers across 100 countries, found that this level of salary increase is broadly in line with other countries in Western European and North America.

However, the UK’s anticipated 2.7% rise in the cost of living is significantly higher than anywhere else in the region. The difference between the UK’s expected wage increases (3%) and inflation (2.7%) was the smallest in Western Europe, at just +0.3%.

In France, Germany and the Netherlands, where wages are expected to rise by between 2.8% and 3% in 2014, inflation is predicted to be at least a percentage point below that, at 1.8%.

Italy’s 2.9% planned pay increase and Spain’s 2.5% are significantly higher than the forecast inflation of 0.7% and 0.8%, respectively.

The research found that, in Western Europe, the average difference between expected pay rises and inflation was 1.4%, while in Central and Eastern Europe this increased to 1.8%. The Middle East and North Africa expects to see average real income increases of 1.7% and even the biggest difference, occurring in sub-Saharan Africa, is only 2.2%.

In areas of Central and Eastern Europe, such as Bulgaria, Poland and Romania, salaries are increasing at a slightly higher rate than in the Western continent at between 4% and 5%, whereas in Russia and the Ukraine, increases are more substantial at around 9%, with inflation predicted to increase in the Ukraine from 1.2% this year to 7.5% in 2014.

In the Middle East, the United Arab Emirates, Qatar, Bahrain and Saudi Arabia employers are planning salary increases of just above 5%.

Paul Richards, head of the data services practice in Europe, the Middle East and Africa (EMEA) at Towers Watson, said: “Signs of a UK economic recovery give private sector organisations the confidence to maintain their 2014 pay budgets above the forecasted inflation rate, at a projected salary increase of around 3%.

“While inflation should decrease during the next year, the UK prediction is still high compared to countries in the Eurozone, despite similar pay budgets, which should help wage rises on the continent feel more significant.”

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Chris Charman, a director in the UK reward practice at Towers Watson, added: “When budgets are lower, the impact that employers can have on employee’s wage increases is limited, therefore, in these instances organisations often prefer to distribute a large proportion of their pay budgets among their most valued employees in an effort to keep them engaged and motivated.

“Conversely, when budgets were more generous, the focus shifts away from differentiation and toward more equal pay rises across the organisation.”