UK wage growth will struggle until 2016, says Chartered Institute of Personnel and Development

Jessica Morris
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Wage growth has important implications for when interest rates will rise (Source: Getty)

Anyone hoping for a significant increase in their pay packet next year could be disappointed, according to new research from the Chartered Institute of Personnel and Development (CIPD).

The human resources organisation said employers finding it easier to find and keep staff will hold back wage growth until 2016. While wages should still grow between one and two per cent next year this will be primarily driven by low levels of inflation.

Earlier this year, consumers cheered as wage growth finally started to outpace the rate of inflation. Wages grew by 1.3 per cent for the three months to September inching 0.1 per cent ahead of that month's inflation rate.

Bank of England (BoE) officials previously cited weak wage growth, which had so far failed to rise above the rate of inflation for the last six years, as one of the main reasons for holding interest rates at historic lows.

The latest minutes from the BoE's monetary policy committee showed policy makers thought wage growth was promising but in line with productivity, making it unlikely to fire up the future rate of inflation.

Mark Beatson, chief economist at the CIPD, said:

We said at the start of 2014 that productivity needed to be at the top of the agenda for Government and the same is true this year.

As a country we are still producing less value today than before the recession, and the years preceding that.

We need a massive step-change as without growth in productivity, we are unlikely to see real earnings growth for some time.

The CIPD also said employment will slightly beat official forecasts rising by half a million next year. This is due to an increase in the number of migrant workers, older workers staying in employment to boost their pension pots, and government initiatives.

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