Pay settlements expected to drop in 2024

Pay awards

Basic pay increase expectations have fallen for the first time since the start of the pandemic, according to the Chartered Institute of Personnel and Development’s (CIPD) latest Labour Market Outlook.

After holding steady at 5% for more than a year, UK employers’ expected basic pay rises for the next 12 months have fallen to 4%.

The report which surveyed 2,006 employers in January 2024, found that the median expected basic pay increase in the private sector has fallen from 5% to 4% since the last quarter, while pay expectations in the public sector have fallen further from 5% to 3% which could lead to difficulties attracting and retaining public sector staff.

Early data from the CIPD suggested that to fund higher wage costs, employers are no longer accepting lower profits. Of employers that have had to raise wages over the past six months or plan to in response to hard-to-fill vacancies, fewer this quarter (37%) are taking lower profits, absorbing costs, or accepting higher overheads, compared to the past year.

Additionally, fewer employers are expecting their workforce to grow compared to previous quarters. A third (33%) of employers plan to increase their total staff level over the next three months while one in ten (10%) plan to decrease their overall staffing levels. However, many employers (38%) continue to report hard-to-fill vacancies and one in five (21%) expect significant problems filling roles over the next six months.

Jon Boys, senior labour market economist for the CIPD, said: “We’ve seen a sustained period of high wage growth in response to a tight labour market, and high inflation pushing up the cost-of-living. Pay growth has helped individuals but it leaves employers with a higher wage bill to cover.

“To see a sustained return to growth, there needs to be a real focus on boosting productivity by investing in workplace skills and technology. It’s also in employers’ interest to communicate with employees their wider benefits package and improve job quality to compensate if they are planning to reduce base pay increases.

“The cost-of-living crisis is not over for many workers so finding other ways to help them besides pay, such as providing flexible working where possible to reduce commuting or childcare costs can make a big difference.”