Pay rises of just 1% could lead to 'fall in living standards' - study

Firms expect pay rises to be pegged at 1% in the coming year, leading to a fall in living standards for a "significant" number of workers, a study shows.

A survey of 1,000 employers suggested the economy is about to be hit by a fall in basic pay awards and real wages.

Research by the Chartered Institute of Personnel and Development found that employers' median basic pay expectations over the next year have fallen to 1%, compared with forecasts three months ago of 1.5%.

Demand for workers remains "robust", especially among manufacturers, said the report.

Gerwyn Davies of the CIPD, the professional body for human resources managers, said: "The good news in this latest survey is that employment confidence remains positive, with sectors such as 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."

The survey also found that two-thirds of organisations are planning to recruit staff in the next three months.

Alex Fleming of employment firm Adecco, which helped with the research, said companies continued to be affected by skills shortages.