UK pay rises surge ahead in Western Europe in 2015

18 September 2015

According to the latest Salary Budget Planning Study from Towers Watson British workers are set to enjoy a boom in real-terms pay increases in 2015 and 2016.

The study, primarily covering private sector companies, shows that average UK pay rises of 3%, coupled with record low annual inflation of 0.2%, will outstrip those enjoyed by workers in all other major European economies.

Average pay rises in Germany are expected to be closest to the UK level, at 2.9% this year with slightly higher inflation of 0.6%. However companies in France, Spain, Italy, the Netherlands, Belgium, Ireland, Switzerland, Portugal and Greece have all budgeted for lower employee pay increases of between 2% and 2.6% this year.

Paul Richards, head of Towers Watson’s Data Services Practice for EMEA said: “In 2015 many employees will feel the tide has turned. A combination of decent pay rises and record-low inflation means that British employees are starting to see a real rise in their income after years of frustration. The outlook in the rest of Western Europe is more muted in terms of pay rises, but in all of these countries pay rises are set to significantly outstrip inflation, which has not always been the case over the last few years.”

The outlook in the UK next year is very similar in terms of wage rises but with inflation anticipated to rise steeply from 0.2% to 1.5% meaning wage rises in real-terms will feel lower. A similar pattern is expected across Europe in 2016, with the UK and Germany still expected to lead the region with pay rises of 3%, compared to 2% to 2.8% elsewhere. Inflation rates are also expected to creep up across the continent to between 1.2% and 1.6%, apart from in Spain, Switzerland, and Greece where inflation is expected to remain under 1%.

Paul Richards said: “Even if inflation rises to 1.5% next year as expected, this is still an historically low level. By comparison, between 2011 and 2013 we were experiencing annual inflation of between 2.5% to 4.5% and pay rises that barely matched or were significantly below, so 2016 is still expected to see a healthy real-terms growth in wages.”

The Salary Budget Planning Report is compiled by Towers Watson’s Data Services Practice. The survey was conducted in July 2015. Approximately 8,000 sets of responses were received from companies across 110 countries worldwide. The report summarises the findings of Towers Watson’s annual survey on salary movement and reviews practices as a means of helping companies with their compensation planning for 2015.