CIPD: British wage increase ‘likely to disappoint’ this year

According to the Chartered Institute of Personnel and Development (CIPD), wage increases across the UK are expected to stick at the 2 per cent level for the rest of this year.

This is below the 3.5 per cent rate originally forecast by the Bank of England (BoE) and Office for Budget Responsibility.

The news is important because any wage growth has an impact on national interest rates, and the overall likelihood of the base rate being increased by BoE policymakers from the current historic low of 0.5 per cent.

One of the key reasons behind the CIPD’s forecast is that employers are deciding to hold back on salary rises as a result of the new ‘living wage’ and other operational costs.

Out of the sectors that are reportedly most reluctant to give out salary increases are the retail, social care, and hospitality sectors.

The rise in pension costs for SMEs, especially as auto-enrolment duties start to fall on them in the run up to 2018, is another reason for their reluctance.

Mark Beatson, chief economist at CIPD said: “With inflation close to zero, some employers will try to manage these costs by restricting pay rises for their better-paid employees.”

The CIPD research highlighted that most companies report having a wide range of candidates to choose from for most of their vacancies, which has also had an impact on salary rises.

Wage growth during 2015 slowed in the three months to October, and the report’s other findings have highlighted that a BoE base rate rise is unlikely in the immediate future.