Private sector pay hits a seven-year high

Date: 18 February 2019

People shaking hands

Inflation and a continuing skills shortage are pushing up salaries in the private sector, according to a new report.

The latest Labour Market Outlook, produced by the CIPD and the Adecco Group, has surveyed 1,254 employers on their pay, recruitment and redundancy intentions for the first quarter of 2019. It has found that basic pay expectations in the private sector have increased from 2% to 2.5%, the highest figure since tracking began in 2012. However, basic pay award expectations in the public sector have fallen from 2% to 1.1%, widening the gap in private and public pay.

For employers that expect to increase pay by 2% or more, inflation remains the driving factor (42%), followed by the need to pay the going rate of pay elsewhere (38%).

The research has also found that 71% of employers with vacancies say that at least some of them are proving hard to fill. Two-thirds (66%) of private sector firms have increased starting salaries in response to recruitment challenges, up from 56% in the previous quarter. Private sector employers are also far more likely to raise overall salaries (62%) than public sector employers (34%) in response to retention pressures.

In contrast, just 27% of public sector employers are increasing starting salaries, down from 43% in summer 2018 - despite the fact that employers in the public sector are more likely to have hard to fill vacancies than the private sector (77% compared with 69%).

"While the private sector is more willing to spend money in response to recruitment and retention challenges, the public sector's hands are tied," said Jon Boys, labour market economist for the CIPD. "Employers will need to think far more creatively about how they attract, develop and retain their staff to boost both skills and productivity."

The net employment balance - a measure of the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels - has fallen to +20, continuing a downward trend from a high of +26 in summer 2018.

"The UK recruitment market maintains positive levels of demand despite the imminent uncertain future," said Alex Fleming, president of staffing and solutions at the Adecco Group UK and Ireland. "Even though there has been a fall in the net employment balance, employers seem to be adapting to the idea that a skills-short market is a fact of life, and they are getting on with things regardless."

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