Wage increases to slow in 2024: key takeaways from CIPD pay report

Settlements expected to fall as UK enters ‘key moment’ in labour market

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CIPD research published today (12 February) predicts that pay settlements will dip throughout 2024, marking the first decline since spring 2020.

According to the latest findings from the CIPD’s Labour Market Outlook, based on a survey of more than 2,000 senior HR professionals and decision makers in the UK, the average predicted pay award is set to be 4 per cent, down from 5 per cent last year. 

It also found settlements in the private sector fell from 5 per cent to 4 per cent since the last quarter, while pay expectations in the public sector have fallen from 5 per cent to 3 per cent.

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Jon Boys, senior labour market economist at the CIPD, said it was “a key moment in the UK labour market”. 

He added: “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.”

Companies’ attention was shifting from “helping staff weather the cost of living crisis to focusing on business sustainability and growth”, which may hit headcounts, he warned. 

“It’s crucial the workforce is seen as a key driver of productivity, profitability and value for organisations, rather than a budget line item that can be easily cut to save costs,” Boys said. 

“Investing in skills and training, people management and productivity gains will be fundamental in helping organisations to become future-proof and better able to weather economic headwinds when they come.” 

Duncan Brown, an independent adviser, told People Management the findings were consistent with other work, including REC research that found starting salary inflation fell to a 34-month low in January. 

Brown added that skills shortages were creating a "cost/talent crunch” as firms were not investing sufficient amounts in educating employees.

Derek Mackenzie, CEO of Investigo, part of The IN Group, said: “When it comes to employment, pay is naturally going to play a central role for every member of staff and organisations should understand the impact that pay rises, starting salaries and bonuses can have on recruiting and retaining staff.

“But there is much more to a role than pay alone.” 

Mackenzie added that, to stand out from other employers, organisations must provide clear career advancement, flexible workplace policies, training programmes and other factors that make employees feel “welcome and valued”.

Other takeaways from the CIPD report include:

Fewer employers expect their workforce to grow

According to the report, a third (33 per cent) of employers planned to increase their total staff level over the next three months, while one in 10 (10 per cent) aimed to decrease their overall staffing levels. 

The CIPD said: “The picture masks more significant change in the public sector,” where one in five (18 per cent) employers were planning to reduce staffing levels. 

The research found that the net employment balance, which measures the difference between firms intending to increase and decrease staff levels over the next three months, remained positive. 

However, it has fallen from +26 last quarter to +22 this quarter, its lowest level since winter 2020-21. Net job intentions remained strong in the private sector (+27) but have dropped drastically to only +6 in the public sector. 

Martin Drake, director of Higher People, told People Management that he believes employers are “trepidatious” in their growth plans, which has a knock-on effect on headcount and hiring.

He said: “We’ve been contacted by so many individuals over the past six months who have been made redundant and this can have a ripple of uncertainty effect on others, meaning they are cautious about the economic future and hence are curbing growth plans and the additional overheads of adding to your headcount.” 

David Morel, CEO and founder of Tiger Recruitment, said the decline in employers expecting workforce growth can be attributed to several factors. “Many organisations have prioritised cost-saving measures and operational efficiencies over expanding their workforce, given that payroll expenses represent a substantial portion of their cost base,” he said.

Hiring remains strong and UK employers continue to have hard to fill vacancies

According to the report, two thirds (67 per cent) of businesses intended to hire in the next three months, with recruitment intentions highest in the public sector (82 per cent), followed by the volunteer sector (71 per cent). 

In addition, the report found that two in five (38 per cent) employers polled had hard to fill vacancies, including half (51 per cent) of public sector employers.

The percentage of companies in the private sector with hard to fill vacancies was substantially lower, at 34 per cent.

Find out more about pay progression by reading this CIPD helpsheet