Businesses believe wages will rise at the lowest rate for more than two years as rising costs of employing staff place pressure on pay packets, according to a report out today.
The study by the Chartered Institute of Personnel and Development (CIPD) discovered that companies expect pay for their employees to rise by an average of just 1.2 per cent over the year to December 2016, down from two per cent when asked the same question three months ago.
Pay increases awarded during the 12 months to December 2015 had also fallen to 1.9 per cent, compared to two per cent for the year to September 2015.
When asked why they had not bumped up pay, employers cited low inflation levels, increasing minimum wage rates and needing to comply with pensions auto enrolment.
"A significant proportion of employers have already reported increases in employment costs as reasons why they have limited pay rises in the last 12 months to two per cent or less – and looking ahead these cost pressures will only increase," said Gerwyn Davies, labour market analyst at the CIPD. "For example, many organisations will see further increases in labour costs as a result of the National Living Wage from April this year and the introduction of the Apprenticeship levy from April 2017.
"With inflation expected to remain low during 2016 and labour supply remaining strong, we shouldn’t be surprised to see pay expectations staying low."
The CIPD also discovered that around a fifth of employers (22 per cent) were planning to freeze pay rates for the next year.
The research's release comes less than two months before the new National Living Wage is due to be introduced, setting the bottom rate of wages at £7.20 per hour for those aged over 25 from April.
Last October, national minimum wage was boosted by 20p to £6.70 per hour for those aged 21 and over.
Meanwhile, pensions auto enrolment has been gradually being phased in, depending on how many people a business employs, since 2012.
Earlier this month, the Bank of England echoed the tone of the CIPD report when the monetary policy committee noted that lower levels of inflation would regulate wage pressures in the near future, which also meant that businesses would be unlikely to hike prices on their goods or services to cover staffing costs.