Low pay rises set to limit inflation expecations

Most companies are planning no increase in the level of pay rises next year, despite high inflation hitting what workers earn in real terms, according to a survey of HR managers form Income Data Services (IDS).

More than half said they intended to make the same level of pay award in 2012 as they did in 2011. Encouragingly, however, almost one third said they will improve the level of pay rises next year. Less than 13 per cent indicated that pay rises would be smaller in 2012.

Although the level of pay rises this year was higher than that seen in 2010, with the median increase for 2011 coming in at 2.5 per cent, above the 2 per cent for 2010, "only in some instances have settlements kept in touch with inflation," IDS said. This means that most workers have seen a real-terms cut in their incomes, with the weakness in the jobs market also playing its part by reducing the bargaining position of employees. Inflation is current running at 4.5 per cent, although the Bank of England expects it fall sharply towards its 2 per cent target next year.

The IDS figures came as a monthly survey by YouGov for the the US bank Citi showed that inflation expectations for the year ahead had remained steady at 3.5 per cent in September.

"If the recession recedes, there may be pressure for higher awards, particularly at firms where increases were lower or zero before. Continued high inflation adds to this pressure," Ken Mulkearn, the editor of the IDS Pay Report, said, looking ahead to 2012. "But the uncertain economic outlook, and the impact of public sector cuts on both the wider economy and the labour market will make for a tougher climate when it comes to decision-making on pay."

The most common award this year was 3 per cent, with rises in the manufacturing sector generally outpacing those in private services.