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Employers predict below-inflation 2% pay award

Private-sector employers are forecasting a pay award of just 2% for their employees over the coming year, the latest data from pay analysts at XpertHR reveals.

This figure comes as retail prices index (RPI) inflation (still the most favoured measure of inflation for pay awards purposes) jumped to 3.2% in February 2017, a rise of 0.6 percentage points from January.

Based on data from 212 organisations, XpertHR research suggests that only 8.5% of pay awards over the next year will result in an increase to employees that is worth the same or more than the current rate of inflation. With forecasters predicting RPI to continue to push higher through the year, this figure could be even lower if employers don’t revise their pay review plans.

Inflation was identified as the factor most likely to put upwards pressure on the level of pay awards over the coming year, suggesting that employers are aware of how a below-inflation pay award would be viewed by their employees. With recruitment and retention issues prevailing, many employers are likely to have to use pay to secure the talent they need. However, in a hangover from the recession, many employers report that they simply don’t have the ability to award higher pay awards.

Positively, few employers are planning to freeze pay – just 4.4% of pay reviews are expected to result in no increase – but only a minority expect to give a higher rise than employees received last year. Instead, more than half (52.2%) of pay awards are likely to be at the same level as given a year ago. Just three in 10 (30%) of this year’s pay awards are expected to be at a higher level than the affected employees received last year.

The 2% forecast pay award is in line with XpertHR’s current headline measure of pay awards, which is running at 2% in the three months to the end of February 2017. Based on a sample of 219 pay awards effective between 1 December 2016 and 28 February 2017, we again find that employers are sticking close to the median, with 30% of deals at exactly this level and half of all awards falling between 1.5% and 2.2%. Analysis by broad sector reveals that pay awards in the manufacturing and production sector (at a 2% median) are running just ahead of those in private sector services (1.8%).

XpertHR pay and benefits editor Sheila Attwood said:

“With RPI inflation rising, most employees are facing the prospect of a below-inflation pay award this year. Despite upwards pressures from a number of areas, employers are so far remaining cautious about their pay increases.”