The latest Labour Market Outlook report from the CIPD reveals a decline in UK employers’ anticipated pay growth for the next 12 months, dropping from 4% to 3% in the last quarter.

This marks the lowest level of expected pay growth since the summer of 2022. Previously, pay expectations had remained steady at 5% throughout 2023 before declining to 4% earlier this year.

As pay intentions continue to cool, the CIPD highlights the ongoing cost-of-living challenges facing employees. James Cockett, Senior Labour Market Economist at the CIPD, noted that while the decline in expected pay rises was anticipated due to inflation stabilising within a tolerable range, many workers may still feel financially strained compared to previous years. Cockett emphasised the importance of employers exploring alternative ways to support their workforce, such as offering flexible working arrangements, benefits that enhance take-home pay, and initiatives to improve job quality.

Insights from the Labour Market Outlook

The quarterly CIPD report, which surveys 2,000 UK employers on their pay, hiring, and redundancy intentions, provided further insights into the current employment landscape. Key findings from the latest survey include:

  • Net Employment Balance: The net employment balance, which measures the difference between employers expecting to increase staff levels and those expecting to decrease them in the next three months, continues to decline. It was recorded at +18 this quarter, down from +19 in the previous quarter and +22 the quarter before that.
  • Recruitment Plans: Two-thirds of employers (66%) plan to recruit in the next three months, with recruitment intentions remaining highest in the public sector (81%).
  • Hard-to-Fill Vacancies: 37% of employers reported having hard-to-fill vacancies, with the public sector experiencing a higher rate (48%) compared to the private sector (34%).

Public Sector Challenges and Government Proposals

The public sector, while exhibiting the highest recruitment intentions, also faces significant challenges, particularly in filling vacancies. The sector reports a higher likelihood of plans to reduce staff levels, possibly due to its higher rate of hard-to-fill vacancies and anticipated difficulties in future recruitment.

In the context of the upcoming general election, nearly half (48%) of public sector employers indicated plans to make pay decisions between July and September, a period during which they anticipated pay increases of just 2.5%. This expectation contrasts with the 4.75%-6% pay increases confirmed by Chancellor Rachel Reeves in late July.

James Cockett commented on the situation, suggesting that the public sector had not anticipated the level of pay rises implemented by the Government for the remainder of 2024. He noted that while pay increases are a crucial step towards making public sector roles more attractive, they are unlikely to fully address the recruitment challenges on their own. Cockett emphasised the importance of strategic workforce planning, particularly in ensuring a steady supply of qualified professionals in critical fields such as healthcare and education.

Focus on Strategic Workforce Planning

The CIPD report underscores the need for a long-term focus on workforce planning and job quality to address the challenges facing the public sector. Investing in skills development, people management, and technology is seen as essential for unlocking productivity gains and reducing workload stresses. Such investments are considered fundamental to achieving stronger economic growth and ensuring that organisations are prepared for the future.

As the UK labour market continues to evolve, the CIPD calls for a balanced approach that not only addresses immediate pay concerns but also prioritises the development of a sustainable and skilled workforce capable of driving long-term economic success.