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Inflation closes in on pay award level

Pay awards in the three months to the end of July 2016 were worth 2% at the median, according to provisional findings from pay analysts XpertHR. This sees pay awards return to the level seen at the beginning of the year.

In the first quarter of the year pay awards across the economy were recorded at a median 2%, but this dipped to 1.8% when April deals were included in our analysis. While April is the most common month of the year for pay deals, it is particularly important for the public sector, and these deals heavily influenced the whole-economy figure at the time. When the private sector is considered in isolation, pay awards have been worth a median 2% in every rolling quarter for almost two years.

While the level of pay increases remains subdued, this does at least represent a real-terms increase in pay for employees. Pay awards have been running above retail prices index (RPI) inflation since the end of 2014, although on the latest data the gap has narrowed to just 0.1 percentage points (RPI at 1.9% in July 2016 and pay awards at 2%). And while RPI is predicted to rise above 2% in the final quarter of the year, pay awards are likely to remain steadfast.

Based on a sample of 53 basic pay awards effective between 1 May and 31 July 2016, we find that:

  • The median pay award across the whole economy is 2%, with the middle half of pay awards (the interquartile range) worth between 1.2% and 2.2%.
  • Almost half (48.9%) of pay awards are lower than the award received by the same group of employees last year. Around a fifth (20.9%) are higher, with the remaining 30.2% at the same level.
  • Within the private sector, the 2% figure is also recorded for pay awards in both manufacturing-and-production organisations and in private-sector services.

XpertHR pay and benefits editor Sheila Attwood said:

"The busiest part of the year for pay awards is now behind us. Based on data for the year so far, we see no signs that pay award levels will increase in the remainder of the year. We expect 2% to remain the benchmark pay award through to the end of 2016."