Workers in the UK can expect less generous salary settlements this year, as employers rein in hiring plans, according to a report from the professional body for human resources.
In its regular labour market outlook, which gauges employers’ expectations for the year ahead, the Chartered Institute of Personnel and Development (CIPD) said employers were pencilling in the most meagre pay rises since the pandemic.
This was despite improved business confidence driven by the services sector, according to a separate report by the accounting firm BDO that said output reached its highest level since July 2022.
However, the number of employers who were planning to expand their workforces had fallen below levels seen in previous quarters, according to the CIPD.
With competition for staff reducing, the organisation said it expected the tightness in the labour market to ease, weakening workers’ hand in pay negotiations.
The average pay increase had held steady at 5% for more than a year, the CIPD said, but was expected to fall to 4% this year, marking the first decline since the start of the pandemic.
The median increase in the private sector had already fallen from 5% to 4% in the past quarter, while the public sector had been even tougher for staff, with average settlements down from 5% to 3%.
Employers who had had to raise wages to find staff for hard-to-fill positions were “no longer accepting lower profits” by absorbing extra costs, the CIPD said. Instead, businesses appeared to be slowing down their hiring plans.
Overall, a third of employers planned to increase their total staff level over the next three months while one in 10 planned to decrease their overall staffing levels.
The net difference between those planning expansion and those looking to reduce their workforce remained positive, but fell to +22, down from +26. In the public sector, nearly one in five employers were planning to cut jobs.
Jon Boys, senior labour market economist for the CIPD, said: “This feels like a key moment in the UK labour market. The public and private sector gap in pay expectations is widening again, at a time of mounting pressures on public services.
“More widely, employer attention is shifting from helping staff weather the cost of living crisis to focus on business sustainability and growth, which will impact headcount in some places.”
The report by BDO found the output of UK businesses improved in January, driven by a bounce-back in the country’s dominant services sector.
“It’s encouraging to see our resilient services sector spearheading some positive momentum in January,” said Kaley Crossthwaite a partner at the firm.
However, BDO’s outlook on employment matched that of the CIPD, with its employment index, which measures hiring intentions, falling for the seventh consecutive month.