One in five employers expect to announce a pay freeze

16 May 2017

According to the latest Labour Market Outlook (LMO) survey from the CIPD almost one in five (19 per cent) of organisations expect to announce a pay freeze when they next come to make a pay decision.

The report also found that employers are expecting wages to rise by just 1 per cent in the year ahead, the lowest expectations have been for three-and-a-half years.

The study of more than 1,000 employers discovered that, of those who said they would not be increasing pay above 2 per cent – the Bank of England’s (BoE) target inflation rate – 45 per cent blamed the cap on public sector pay, 38 per cent pinned it on their organisation’s inability to pay more and 15 per cent cited April’s increase in the national living wage rate as a culprit.

Meanwhile, more than one in 10 (11 per cent) blamed absorbing the costs of auto-enrolment for not raising pay above 2 per cent, and a similar proportion (10 per cent) cited the introduction of the apprenticeship levy in April.

Gerwyn Davies, labour market adviser at the CIPD, said:

“The bad news is that there is a real risk that a significant proportion of UK workers will see a fall in their living standards as the year progresses, because of a slowdown in basic pay and expectations of inflation increases over the next few months.  This could create higher levels of economic insecurity and could have serious implications for consumer spending, which has helped to support economic growth in recent months.”

The report comes just days after BoE governor Mark Carney said UK households would see their spending power squeezed this year as prices rose while real wages dropped. Reuters reported that Carney warned of “a more challenging time for British households” ahead, in which “wages won't keep up with prices”.

The central bank raised its forecast for inflation this year to 2.8 per cent. The latest measure for inflation is 2.3 per cent.

The CIPD also discovered that, in the public sector, there are now more employers anticipating that they will have to drop staff from their books in the second quarter of 2017 than there are employers expecting to be able to grow their workforce – the first time this balance has switched over the last year of carrying out the research.

Future employment prospects across all those surveyed also slipped slightly in the most recent quarter, with the balance of those looking to hire and those planning to let staff go dropping to positive 20 per cent, compared with positive 23 per cent in the quarter before.

Meanwhile, almost a quarter (24 per cent) of organisations were planning on making redundancies within the next three months, compared with 22 per cent who said the same when the survey last ran three months ago.

You can download the full Labour Market Outlook spring report, which is produced in partnership with The Adecco Group.