Wage growth is set to slow in 2024 with employers planning to offer workers smaller pay rises than last year, a new survey suggests.
Employers expect pay to increase by around four per cent in 2024, according to the Chartered Institute of Personnel and Development’s (CIPD) quarterly labour market outlook.
This compares to five per cent in the final quarter of last year and was the first fall in pay expectations since the start of the pandemic.
Jon Boys, senior labour market economist for the CIPD, said “this feels like a key moment in the UK labour market”.
“We’ve seen a sustained period of high wage growth in response to a tight labour market, and high inflation pushing up the cost-of-living. Pay growth has helped individuals but it leaves employers with a higher wage bill to cover,” he continued.
The fall in wage expectations will help soothe fears about the possible persistence of inflation. Rate-setters at the Bank of England have argued that pay pressures need to ease before interest rates can start being cut.
Official figures suggest that pay growth has fallen from peaks of over eight per cent last summer to around 6.5 per cent last year. New figures out tomorrow are expected to show a continued drop in wage growth.
Although private sector firms expected pay to increase by four per cent, public sector pay intentions fell to three per cent.
The survey noted that a gap between public and private sector pay makes it “more difficult to attract and retain public sector staff”.
The survey suggests employers will be less willing to accept lower profits as a cost of higher wages.
Of employers who have had to lift wages over the past six months, only 37 per cent said they had funded pay rises through lower profit margins or higher overheads. This was down from 50 per cent last quarter.
Across employers as a whole, the proportion saying that they were funding pay rises through reduced staffing rose to 21 per cent from 12 per cent.