Employers’ basic pay growth expectations hit three-and-a-half year low

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Workers face a squeeze on their earnings as employers anticipate awarding median pay rises of just one per cent 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 suggests that the UK economy is about to be hit by a fall in basic pay awards and real wages. According to the survey data, 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. This is consistent with recent Labour Market Outlook reports, which have indicated a slowing in the rate of basic pay growth, and with official labour market data.

While pay expectations are weakening, the survey 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 slightly since the previous report, down to +20 from the previous quarter’s figure of +23, which is consistent with a modest deterioration over the past two years.

Labour demand is highest in the manufacturing and production sector (+38), but it seems that manufacturing and production employers are also having particular difficulty filling vacancies. Meanwhile, the net employment balance in the public sector has turned 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.

Gerwyn Davies, labour market adviser at the CIPD, the professional body for HR and people development, comments:

“The good news in this latest survey is that employment confidence remains positive, with sectors like manufacturing and production proving particularly buoyant. 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, due to 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.

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