UK pay rises have stalled at 4 percent in the third quarter of 2024, according to Brightmine, with further data suggesting that compensation will to continue to fall next year.
The HR data provider said inflation has played a major role in driving up pay increases in recent years. But its data showed that in 2025 the anticipated drop in pay awards will be driven by business performance and affordability.
The median pay award is forecast to be 3 percent for the next 12 months, nearly two percentage points lower than the median pay award of 4.7 percent for the 12 months to the end of August 2024, and 50 percent lower than for the same period in 2023.
Pay freezes rare
Pay rise forecasts might be falling but researchers said that very few businesses (4 percent) expect to put pay freezes in place.
Businesses said the three factors most likely to lead to lower pay awards in the 12 months ahead are affordability (65 percent), organisation performance (36 percent) and inflation and the cost of living (27 percent).
However, businesses also identified a number of things that could push up the value of their pay awards next year. Potential skills shortages were a main factor as well as matching pay levels within their industry.
The provider’s latest monthly pay trends report showed that pay rises remained flat in September at 4 percent for the third consecutive rolling quarter. The data is based on 64 pay settlements that came into effect between 1 July and 30 September 2024.
Balance affordability with staying competitive
Sheila Attwood, Brightmine senior content manager, data and HR insights, said: “With economic pressures mounting, we’re seeing organisations re-evaluate their pay strategies, and many are shifting their focus toward enhancing employee benefits as a way to balance employee expectations with the needs of the business.
“While pay awards are expected to decline in 2025, businesses are continuing to find creative ways to support their workforce, particularly by addressing skills shortages and retaining key talent.
“Where organisations are perhaps falling short of employee expectations in regard to pay awards, good communication about pay decisions can help to mitigate this.
“The next 12 months will require a careful balance between affordability and maintaining a competitive edge in employee engagement and retention.”
