Workers in the UK could experience reduced wage growth this year, as employers contemplate scaling back pay increases due to ongoing economic challenges, according to a recent report by the Chartered Institute of Personnel and Development (CIPD).

The decline in wage growth is attributed to numerous UK employers scaling back on hiring plans amid slowing economic growth, as highlighted in the report.

In the final quarter of 2023, the average anticipated pay increase in the UK decreased to 4%, a shift from the previous consistent rate of 5%. This marks the first decrease since the onset of the Covid-19 pandemic. The median expected increase within the private sector mirrored this decline, falling from 5% to 4%. In contrast, the expected decrease in the public sector was more pronounced, dropping from 5% to 3%.
 
“This feels like a key moment in the UK labor market,” said CIPD senior labor market economist Jon Boys. “The public and private sector gap in pay expectations is widening again, at a time of mounting pressures on public services,” he added.

Reduced pay increases would have a negative impact on the purchasing power of Britons, limiting disposable income at a period when living costs are increasing. Experts cautioned that this situation could prompt many individuals to reassess their budgets and expenditures.

“We’ve seen a sustained period of high wage growth in response to a tight labor 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,” Boys detailed.

The survey, carried out last month and encompassing over 2,000 employers, revealed that approximately one-third of employers intend to expand their workforce in the coming three months, while 10% foresee reductions.

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UK businesses turn to overseas recruitment amidst worker shortage

Earlier this month, the National Institute of Economic and Social Research (NIESR) warned that businesses are growing increasingly dissatisfied with their efforts to recruit British workers and are turning to international recruitment to address vacancies.

According to The Telegraph, the number of companies seeking sponsorship to hire overseas workers has doubled over the past two years, reflecting a trend driven by a significant exodus of British workers from the job market.

Over 9 million individuals of working age have withdrawn from the job market, with the economically inactive population swelling by 884,000 since before the pandemic. Despite significant increases in wages, many of these individuals remain hesitant to fill the more than 900,000 available job openings. As a result of this, employers have found themselves compelled to seek crucial staff from overseas.

The number of people receiving out-of-work benefits has surpassed 5 million, marking a notable increase from 3.5 million in 2015. The Office for National Statistics (ONS) has identified 2.8 million individuals who report being neither employed nor actively seeking employment due to long-term illness.

Despite a 6.5% rise in average wages in the year leading up to November, claimants are opting to stay on benefits for longer periods rather than pursuing available job opportunities, as noted by the NIESR.

As a result of this freeze, escalating wages amid the cost of living crisis have led to more individuals being pushed into higher tax brackets. This phenomenon, often referred to as fiscal drag, acts as a stealth tax, increasing the tax burden on individuals without explicit tax rate changes.

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