Only 24% of employers in the private sector say they are under pressure - to any degree - from the majority of their workforce to raise wages, whilst almost four in ten private sector firms say they face no pressure at all.   These are findings of the latest quarterly CIPD/The Adecco Group Labour Market Outlook survey conducted on more than 1,000 HR professional and decision makers.    

However, a slightly higher proportion of private sector employers state that, particularly among high and middle-skilled jobs, there is either some or significant pay pressure to raise wages for certain roles.  23% of private sector employers stated that the reason for the lack of pressure to raise wages is the fact that workers recognise that the business cannot afford more generous pay increases - which underlines the productivity challenge facing many firms.       

In the public sector almost three-fifths of the organisations state that they are under pressure, to some extent, to raise wages for the majority of their employees - which may partly reflect the recent debate about scrapping the public sector pay cap.  In addition, 25% of public sector organisations say that they are under some or significant pressure to raise wages for certain roles. 

The survey also suggested that a noteworthy majority of employers do not face any significant difficulty accessing the skills they require.  Only 13% of all current private sector vacancies are skill-shortage vacancies and only 29% of all employers with a vacancy report that it is from skills shortages.  This suggests that any pay pressure is not likely to come from a lack of skills in the current labour market. 

Employers report that average basic pay increases are expected to reach 2%, which is higher than the previous quarter’s figure of 1% - but is still in line with official data that shows wage growth as being between 1.8 and 2.2% over the past six months. 

The survey also shows that - consistent with the trend over recent years, the average basic pay increase expectations are higher in the private sector (2%) than in the public (1%) and voluntary (1.5%) sectors.  However, whilst overall pay pressure is quiet in the private sector, some parts are under more pressure - for example, 38% of construction employers say they are under some or significant pressure to increase earnings for the majority of the workers.

Gerwyn Davies, CIPD Senior Labour Market Analyst, states, “This survey provides further evidence that productivity has a far more significant bearing on pay growth than the tightness of the labour market. Over time we might expect low unemployment levels to lead to increased pressure on pay, as the Bank of England has predicted. However, it’s the UK’s ongoing poor productivity growth that’s currently preventing employers from paying more, not their inability to find or retain staff. This is why the Chancellor in this month’s Budget has to prioritise investments that will support workplace productivity improvements - for example, investing in support for small firms and skills development initiatives that can help to drive productivity gains over time.

In terms of employment, despite the evident optimism in this quarter’s survey, it remains likely that the sharp increase in the number of people in work over the past year will ease during the course of 2018. This is due in part to the impact of continued slower economic growth, the uncertainties associated with Brexit and the prospect of further interest rate rises. However, employment prospects for the manufacturing sector look bright, perhaps buoyed by the benefit of a weaker currency and the strength of global demand.”