British companies remain buoyant over hiring intentions but expect pay rises to be running at just one per cent in the coming year, leading to a fall in real pay for “significant” numbers of workers, according to a new survey.

Optimism amongst employers

The survey of 1,000 employers by the Chartered Institute of Personnel and Development (CIPD) found that 68 per cent of organisations were planning to recruit in the next three months with almost half of vacancies in the manufacturing sector being for new, rather than existing, roles “reflecting optimism amongst employers”.But on pay, the latest CIPD/Adecco Group Labour Market Outlook survey suggested “the UK economy is about to be hit by a fall in basic pay awards and real wages” with employers’ median basic pay expectations of one per cent in the next 12 months representing the lowest figure for 30 months, and down from a 1.5 per cent expectation only three months ago.

Fall in living standards

Gerwyn Davies, labour market adviser at the CIPD, commented, “The good news in this latest survey is that employment confidence remains positive, with sectors like manufacturing and production proving particularly buoyant.“The bad news is that there is a real risk that a significant proportion of UK workers will see a fall in their living standards as the year progresses, due to a slowdown in basic pay and expectations of inflation increases over the next few months.“This could create higher levels of economic insecurity and could have serious implications for consumer spending, which has helped to support economic growth in recent months. “The weak pay data is no surprise given the continued weak productivity growth in the UK. However, this is being exacerbated by many employers’ passive attitude towards workforce development and training, despite reporting hard-to-fill vacancies.“At the same time, private sector employers are proving stubbornly unresponsive to labour market changes that should, in theory, act to increase wages, such as the number of unfilled vacancies.“The data suggests that the introduction and increase of various labour costs, such as the government’s auto-enrolment scheme and the apprenticeship levy may be part of the explanation. It’s crucial therefore that we see a pick-up in employer investment in workforce skills development to support and sustain productivity growth.”

Demand for labour remains robust

Alex Fleming, managing director of Adecco UK & Ireland, added, “One of the key trends in the report is that demand for labour continues to remain robust. Not only is employment confidence high in some sectors but also, promisingly, this quarter’s net employment balance remained positive. Employees are however set to continue to experience subdued wage growth in the year ahead. “Workforce planning continues to be vital as Brexit becomes a closer reality for the UK. Skills shortages continue to be evident in the UK labour market and employers need to be addressing this issue head-on with thorough planning.“Interestingly, one in ten firms indicate that the UK’s decision to leave the European Union has made them consider relocating some or all of their business operations to outside of the UK. Amongst those who have considered relocating to outside of the UK, one-in-three don’t know which country they would relocate to or say it is too soon to say. UK employers need to take investment in skills and people seriously to protect the future of our economy.” 

Difficulties filling vacancies

The survey found that more than half of employers were currently experiencing difficulties filling vacancies and that almost a fifth of these organisations said they did not fund any training activity.Additionally, almost a quarter of organisations said they were planning to make redundancies in the coming three months, modestly up from 22 per cent in the previous report. 

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Related news:

• UK labour market 'facing variety of challenges'
• Recruiters say more access to foreign skills is vital
• ‘Good work’ must be at heart of next government’s thinking: CIPD

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Reacting to the report, Prof Peter Urwin, professor of applied economics and director of the Centre for Employment Research at Westminster Business School, said, “This year will be a year of brinkmanship, tipping us into recession in early 2018, with unemployment rising from late 2018. Wages will likely stagnate into 2018 and we may even see a real-terms fall, if the labour market responds as it did following the 2008 recession.“This suggests any rise in unemployment will be limited, as wages ‘adjust’, but favourable economic news from the continent will slow the supply of EU talent to a recession-hit UK. Employers need to get their strategies in place now, before the storm hits.“Evidence suggests that the UK economy is slowing, with growth of 0.3 per cent between January and March much less than expected. Rising prices and low wage growth are the most likely cause of a 1.8 per cent fall in retail spending in March.“It is difficult to say whether this is a blip or the first signs of a slump, but initial Brexit exchanges suggest the European Commission will be given free rein in negotiations, and this risks a serious downturn in the UK.“Both the European Commission (EC) and the member states of Europe have a shared interest in ensuring a Brexit that does not favour the UK; but the member states interest in tempering this, to avoid negative economic impacts across Europe, is not shared by the EC. Recession in the UK would strengthen the hand of EC negotiators and it is, therefore, a realistic prospect for the start of 2018.”For related news and features, visit our HR section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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