UK wages will grow less than expected in 2016 as employment costs continue to rise

The increase in wages in Britain in 2016 is expected to be a lot smaller than the Bank of England's forecast, as rising employment costs and low inflation put employers under pressure, a survey released on 15 February showed.

According to a survey by the Chartered Institute of Personnel and Development (CIPD), employers expect to increase their staff's average basic pay by just 1.2%, down from the 2% planned increase the survey reported three months ago.

"The feedback we're seeing from employers suggests that official forecasts for wage inflation for 2016 are too optimistic,"said CIPD labour market analyst Gerwyn Davies.

CIPD added the planned increase was the lowest on record in more than two years and cast further doubts over whether UK businesses could deliver the 3% increase in average earnings that the Bank of England has forecast for the end of 2016.

According to the survey, there were a number of factors to blame for the revised wage growth expectations, as greater pension costs, the introduction of the national living wage and near-zero inflation have put pressure on employers, although it added employers still planned to hire strongly this year.

On 11 February, the Confederation of British Industry (CBI) said the UK economy will grow slower than expected in 2016 and 2017 and now expects growth of 2.3% this year and 2.1% next year, down from its November 2015 forecast of 2.6% and 2.4% respectively.

The CBI added on 15 February that business rates and recent fiscal policies such as the national living wage including the apprenticeship levy are increasing the burden on businesses and will cost companies £29bn (€37.4bn, $42bn) over the course of the parliament.

CBI director-general Carolyn Fairbairn said: "In the context of a more fragile global economy [...] any more could tip investment decisions, could tip growth plans, could tip job creation."