According to new research by the CBI, almost half of firms are intending to raise pay in line with inflation. 

A new study conducted by the Confederation of British Industry (CBI) indicates that staff shortages are prompting more employers to offer pay rises.

As such, almost half of firms surveyed by the CBI (44 per cent) expressed that they are intending to raise pay in line with inflation while a further quarter (24 per cent) planned to raise pay above inflation levels.

Fewer than 1 in 10 businesses are planning to freeze pay (8 per cent), down from a third (33 per cent) in 2020.

A lack of access to staff was a factor highlighted as a key threat to the competitiveness of the UK with around three-quarters of firms (76 per cent) finding this to be the case.

The combination of Brexit and the pandemic has caused a significant fall in the number of staff available to fill roles – with latest figures showcasing over a million vacancies in the UK labour market.

Previous research carried out by the CBI suggested staff shortages could last up to two years.

In particular, many retirement age workers and younger employees have left the workforce with data confirming that almost half a million (400,000 workers) older workers may have taken an early retirement.

However, the CBI has warned that pay rises must be underpinned by productivity or customers may be left to pay higher prices.

In order to tackle a lack of staff, the body have urged the Government to ease immigration rules and review the Shortage Occupation List.

Tony Danker, CBI Director-General, stated:

Using existing levers at the UK’s control – like placing drivers, welders, butchers and bricklayers on the Shortage Occupation List – could make a real difference.

The Government promised an immigration system that would focus on the skills we need rather than unrestrained access to overseas labour. Yet here we have obvious and short-term skilled need but a system that can’t seem to respond.

Matthew Percival, the CBI’s director of skills and inclusion, added:

Pay intentions are rising as the economy recovers. Pay rises need to be underpinned by productivity or risk being passed on to customers through higher prices.

Businesses are committed to raising living standards and think the Low Pay Commission should protect the real terms value of the minimum wage rather than recommend unstainable larger increases.

It’s too early to know the impact of the pandemic on the National Living Wage target for 2024, so this will need to be kept under review.