UK employers anticipate awarding median pay rises of 1% in the year ahead, according to findings from the latest CIPD/The Adecco Group Labour Market Outlook survey. 

The survey of more than 1,000 employers shows that employers’ median basic pay expectations in the 12 months to March 2018 have fallen to 1% compared to 1.5% three months ago, which is lower than at any time during the past three and a half years.

While pay expectations are weakening, the survey also finds that demand for labour remains robust for the second quarter of 2017. The report’s net employment balance, which measures the difference between the share of employers expanding their workforce and the share of employers reducing their workforce, remains positive. However, it has softened since the previous report, down to +20 from the previous quarter’s figure of +23.

Meanwhile, labour demand is highest in the manufacturing and production sector (+38). Furthermore, the net employment balance in the public sector is negative (-6) since the previous report (+6) as more public sector employers expect to reduce the size of their workforce in the second quarter of 2017, compared with the number who plan to increase it.

“There is a real risk that a significant proportion of UK workers will see a fall in their living standards as the year progresses, due to a slowdown in basic pay and expectations of inflation increases over the next few months,” Gerwyn Davies, Labour Market Adviser at the CIPD, the professional body for HR and people development, said. “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 weak pay data is no surprise given the continued weak productivity growth in the UK. However, this is being exacerbated by many employers’ passive attitude towards workforce development and training, despite reporting hard-to-fill vacancies. At the same time, private sector employers are proving stubbornly unresponsive to labour market changes that should, in theory, act to increase wages, such as the number of unfilled vacancies. The data suggests that the introduction and increase of various labour costs, such as the government’s auto-enrolment scheme and the apprenticeship levy may be part of the explanation. It’s crucial therefore that we see a pick-up in employer investment in workforce skills development to support and sustain productivity growth.”

The survey also found that 68% of organisations are planning to recruit employees in the next three months and 45% of vacancies in the manufacturing sector are for new roles, reflecting optimism amongst employers.

 Further findings from the report also show that more than half of employers (56%) report they currently have difficulty filling vacancies in their organisation. Moreover, 24% of organisations are planning to make redundancies in the next three months, up from 22% in the previous report.