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Pay rises set to exceed inflation next year

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UK employers have awarded strong pay increases this year, but employees didn't see the benefit because of an even bigger jump in inflation.

The Annual Survey of Hours and Earnings, a comprehensive labour market survey by the Office for National Statistics (ONS), reveals that workers this year saw the biggest rise in weekly pay in at least a quarter of a century.

Median weekly earnings for full-time employees stood at £682 in April 2023 -- a 6.2% increase over the £642 in April 2022. This is the highest growth since comparable records began in 1997.

The figures also show a decrease in the gender pay gap, with the pace of earnings growth for women (9.1%) outstripping that of men (6.8%).

However, adjusted for inflation, earnings fell by an average of 1.5% on the year.

Pay rises spread over longer period

If inflation continues to fall, pay will increase in real terms next year.

Businesses expect to repeat a higher than usual nominal pay increase of 5% in 2024, according to the latest annual Salary Trends Report by global mobility specialist ECA International. This equates to an average salary boost of £447 -- the highest real-terms increase since 2020 -- if inflation falls to 3.7% as anticipated.

"With inflation so high, many businesses in the UK have been unable to offer their employees pay awards to match," said Oliver Browne, Remuneration and Policy Surveys manager at ECA International. "Nominal increases are expected to remain higher than usual next year despite falling inflation, suggesting some companies may instead be spreading larger increases over a longer period."

Wage growth slows down

The most recent quarterly figures from the ONS show that wage growth is slowing down slightly as the labour market loses momentum.

Regular pay (excluding bonuses) rose by an average of 7.8% in the three months to August 2023 compared to a year earlier, down from 7.9% in the three months to July.

Employees' average total pay (including bonuses) was up 8.1% in June to August, including the impact of one-off payments made by the NHS and civil service.

With consumer price inflation at 6.7% in August, total pay increased in real terms by 1.3% in June to August 2023, and for regular pay the increase was 1.1%.

Total employment package

"This isn't much, but at least pay packets are getting heavier each month and not lighter, as has been the case for much of the last two years," commented Jon Boys, senior labour market economist for the CIPD, the professional body for HR and people development.

"The cost-of-living crisis is easing but it'll be some time before pay packets weigh as much as they did in early 2021," Boys added.

Separate HMRC data on PAYE estimates indicates that pay growth has continued to ease and grew by 5.7% in the year to September.

Boys noted that many employers will be "relieved" to see pay growth slowing down as it reflects a higher cost of doing business.

"However, recruitment and retention remain challenging, and employers must work hard on the total employment package to keep staff motivated and help alleviate the burden of the cost-of-living crisis," he added. "Paying attention to things people value such as flexible working and making use of benefits like salary sacrifice can boost the value proposition of employment."

Posted by Fidelius on November 6th 2023

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