Pay growth is likely to remain weak in the UK despite strong hiring demand and falling unemployment in the third quarter according to the latest Labour Market Outlook from the Chartered Institute of Personnel and Development (CIPD) and The Adecco Group.

The quarterly report, which surveyed more than 1,000 employers, forecasted that pay rises will remain subdued at 1% as there are 24 applicants for every low-skilled job vacancy, 19 candidates for every medium-skilled vacancy and eight for high-skilled posts. Against the backdrop of poor productivity growth, the report points to an increase in labour supply over the past year as a key factor behind the modest pay projection. This is driven by increases in the number of non-UK nationals from the EU, ex-welfare claimants and 50-64 year olds, according to the report.

Overall, employers felt that around half of applicants were suitable for each role they were recruiting for. The variation across skill level is also consistent with labour market trends which show that high-skilled occupations account for a large share of the number of jobs created during the past year in contrast with the low proportion of low-skilled jobs that have been generated. 

Meanwhile, in the private sector, almost a quarter of firms cite delivering the National Living Wage (23%) as a brake on pay growth, a further 21% cite uncertainty over access to the single market, and another 21% reference the government’s auto-enrolment pensions scheme as acting as a challenge. Furthermore, 21% also report that affordability is weighing pay down, with the survey stating that it underlines the urgent need to address weak productivity growth in the UK. Meanwhile, around three quarters of public sector employers, or 72%, say that restraint in the public sector is the main reason why they cannot match the inflation rate target of 2% in their next basic pay award.

“Predictions of pay growth increasing alongside strong employment growth is the dog that hasn’t barked for some time now, and we are still yet to see tangible signs of this situation changing in the near-term,” Gerwyn Davies, Senior Labour Market Analyst for the CIPD, said. “The facts remain that productivity levels are stagnant, public sector pay increases remain modest while wage costs and uncertainty over access to the EU market have increased for some employers. At the same time, it is also clear that the majority of employers have still been able to find suitable candidates to employ at current wage rates due to a strong labour supply until now.”

“The good news is that the UK labour market continues to go from strength to strength,” Davies said. “This is particularly good news for jobseekers, especially the long-term unemployed, who have recently been able to move into work more quickly than in the past. Against the backdrop of future migration restrictions and a tight labour market, the need for a workforce development plan is greater than ever.”

“This quarter’s report demonstrates strong and stable employment intentions,” Alex Fleming, President of General Staffing, The Adecco Group UK & Ireland, said. “These have remained in a positive range for the last two years during which time we have seen unemployment consistently fall. Context is important here though: employers continuing to hire isn’t, necessarily, an indication that they are convinced of a bright economic future, rather that nothing significant has changed in recent months. Many employers are getting on with the day-to-day hiring required to keep their businesses ticking along until they have enough information to build concrete recruitment plans.”

“However continued subdued wage growth that the labour market is currently facing is a real issue that employers need to tackle head on,” Fleming said. “Employers must to invest in staff to increase productivity, thus in-turn providing them with the opportunity to increase wage growth. Overall, our labour market picture looks promising especially considering the unknown future impact of Brexit on the flow of talent in and out of the UK.”