The institute’s Labour Market Outlook survey of 1,000 employers, conducted by YouGov, asked employers if they planned to increase, freeze or decrease pay in the 12 months to December 2012. It found that the expected mean basic pay settlement was 1.7 per cent, compared with 1.5 per cent in the previous quarter and 1.3 per cent at the same time last year.
In the private sector, 35 per cent of employers predict a pay rise (unchanged from last quarter), with the average increase creeping up from 2.1 to 2.2 per cent. Among those planning to increase pay, manufacturing and production firms are forecasting the highest rises (2.9 per cent), followed by those in the service sector (2.7 per cent).
The increases are good news for employees at a time when inflation is heading downwards. Last week it was revealed that RPI inflation had fallen to 3.9 per cent and CPI to 3.6 per cent, so the wage data predicts an easing of the disparity which had led to falling living standards.
However, the survey revealed that a level of uncertainty prevails amongst many employers, with 55 per cent of private sector firms and a similar proportion in the third sector saying they were unable to predict the outcome of their pay decision.
Charles Cotton, CIPD rewards adviser, said: “While the predicted increases in pay settlements reflects a cautious optimism among members in the private sector that the worst may now be over, uncertainty about how fast the economy will improve is acting to moderate pay forecasts and leading many employers to hedge their bets on the outcome of the final decision. As we move further into the pay round and as organisations get a better idea of how well they and the economy are likely to perform, we should see fewer feeling unable to predict the outcome of their annual pay decisions.
“Across all sectors, and whatever pay decisions are predicted, it’s vital that employers maintain an honest line of communication with employees in order to keep staff motivated and engaged; previous CIPD research has shown that employees are satisfied with their employer’s pay decision if their employer has taken the time to explain the rationale behind that decision. The same research also showed that even among those employers that do talk to employees about the basis of their pay rise, few took the opportunity to explain to staff what needed to happen in the next 12 months for staff to get another increase.”
Meanwhile, the replacement of a pay freeze with a 1 per cent pay cap in the public sector has seen the average public sector pay increase go up from 0.3 per cent to 0.8 per cent.