UK wages are set to rise by an average of 3% in 2015, following an average increase of 2.5% in 2014, according to Towers Watson’s latest Salary Budget Planning report. Figures collected from general industry indicate that this rate of salary growth are likely to be maintained into 2016.
Against a backdrop of comparatively low inflation this year (expected to average 0.2%*), the report shows UK workers at all professional levels may start to feel less pressure on disposable incomes as salary increases outstrip inflation.
Paul Richards, head of Towers Watson’s Data Services Practice for EMEA said: “Across Europe, the Middle East and Africa, our research reveals that rather than Consumer Price Indices driving salary budgets, pay growth is increasingly being driven by factors such as the competition for talent, economic growth expectations and also the shifting weight of base salary or guaranteed cash within the overall reward package against other elements such as car allowances and performance-related bonuses. In the Middle East, for example, we see an increased use of allowances as a substantial portion of the reward package.
“A clear distinction remains between Western Europe and developing economies in terms of the scale of pay growth, with average increases higher than 10% in several African countries including Ghana and Malawi. However, it’s also important to bear in mind that such environments have different pressures on employers than those experienced in more developed economies, such as inflation and the demand for talent in a growing economy.”
The stabilisation of salary movements in the UK is forecast across all sectors, but the research reveals that pay growth could be greater for certain skilled jobs with a smaller talent pool such as R&D roles in the pharmaceutical industry and for hi-tech professionals.
Joris Wonders, Leader of Towers Watson’s EMEA Reward practice, added: “Our latest Global Workforce Study confirms that pay remains the number one factor in attracting and retaining talent. The challenge is working out how to use the salary budget more effectively to ensure sufficient recognition for top performers or those with critical skills, where the market might be moving at a faster pace. It really comes down to segmentation, differentiation and giving a bigger slice of the reward pie to key members of staff that companies want to keep for the long-term.”
* CPI inflation figures based on Economist Intelligence Unit 2015 predictions.