The Governor of the Bank of England recently said that we need to see “a moderation of wage rises” to stop rising inflation. However, employers in the UK are set to award record pay rises in 2022 in an attempt to tackle tough recruitment conditions.
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The Bank of England expects the rate of inflation to reach over 7 per cent by Spring 2022, significantly above the usual 2 per cent government-set target.
In an interview with the BBC, the Governor of the Bank of England Andrew Bailey explained that business measures, such as pay rise restrictions, will be needed to prevent inflation from becoming entrenched:
“In the sense of saying, we do need to see a moderation of wage rises, now that's painful. I don't want to in any sense sugar that, it is painful. But we need to see that in order to get through this problem more quickly.”
But research by the CIPD predicts that employers anticipate making pay awards of 3 per cent in 2022, as they look to combat increasing recruitment and retention difficulties. This pay award figure is the highest since the survey was conducted using its current methods in the winter 2012/13 report.
The Problem of Hard-To-Fill Vacancies
The CIPD’s latest quarterly "Labour Market Outlook" highlights the current recruitment challenge for UK employers, surveying more than 1,000 employers about their hiring, pay and redundancy intentions for the first quarter of the year.
Over two-thirds (70 per cent) of employers said that they plan to recruit in the next three months to March 2022 and just one in ten (11 per cent) plan to make redundancies. Redundancy intentions were significantly higher before the pandemic, at 16 per cent in winter 2019/20.
However, while recruitment intentions remain strong, almost half (46 per cent) of UK employers report having vacancies that are hard-to-fill. Two-thirds of employers (64 per cent) anticipate problems filling vacancies in the next six months, with a third (33 per cent) expecting these problems to be "significant".
Pay Rises for Workplace Retention
Two-fifths of employers (41 per cent) reported increased employee turnover or difficulty with retaining people over the last six months. Measures to tackle this include:
Raising the pay of the incumbent workforce.
An overall median basic pay increase in their organisation (excluding bonuses).
Improved flexible working arrangements.
A focus on more on employee wellbeing.
Increased investment in training and development.
A Demand for Pay Reviews
Over four-fifths (84 per cent) of employers are planning a pay review in the 12 months to December 2022. Among these, around four in ten (40 per cent) expect basic pay to increase, 7 per cent expect a pay freeze, while just 1 per cent expect a decrease.
Jonathan Boys, Labour Market Economist for the CIPD commented: “Even though businesses anticipate making record pay awards to their employees this year, most people are set to see their real wages fall against the backdrop of high inflation.
“What is encouraging is that more employers are looking beyond pay increases to help attract and retain staff by providing more flexible working opportunities and investing in more training and development, as well as taking steps to support employee health and wellbeing. Together these practices can broaden the range of candidates employers can attract and may also reduce the need to recruit more staff, which should reduce wage inflation pressure to a degree."
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