UK employers reluctant to increase pay

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Barely a quarter of employers will offer pay rises to their workers despite difficulties in hiring talent, adding to the cost-of-living pressures facing Britons, research suggests.

In a quarterly survey of 2,000 employers by the Chartered Institute of Personnel and Development, only 27 per cent of companies across all sectors said they were willing to increase pay to retain or attract labour in the second quarter of the year.

This is despite nearly half — 45 per cent — of employers saying they were struggling to fill vacancies and two thirds saying that they expected hiring shortages to persist for the next six months. The worst hiring difficulties were reported in healthcare, education and the voluntary sector.

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With inflation running at 7 per cent and due to hit more than 10 per cent this year, households are facing a once-in-a-generation squeeze on the cost of living and the worst drop in real income since the 1950s.

The institute’s survey indicated that the average pay increase in the second quarter would be 3 per cent, the highest level since the report began in 2013. However, this still falls below average inflation of 9.1 per cent in the second quarter, according to the Bank of England.

In the absence of bumper pay rises, the institute said employers were offering other incentives to workers, such as the chance to upgrade their skills or flexible working hours. “Employers are running out of steam on their ability to increase pay any further, so they’re switching their focus to retention and keeping their existing workforce happy,” Jonathan Boys, its labour market economist, said.

The unemployment rate has fallen to a pre-pandemic low of 3.8 per cent, adding to risks that higher pay will create domestically driven inflation. The Bank thinks that unemployment will have to rise as high as 5 per cent in the years to come to contain rising prices.