UK 2.5 per cent pay rises indicate strong salary growth

New figures show that employers awarded pay rises of 2.5 per cent in the first three months of the year, thus matching the rate of inflation in Britain.

The UK economy may be on the road to recovery, but until now many British workers have seen relatively little improvement in their finances at the end of each month. However, new data from research firm IDSPay.co.uk shows that wages are finally beginning to keep up with inflation.

In the first three months of the year, the figures show the median pay award agreed by staff and employers stood at 2.5 per cent. Some 60 per cent of the pay settlements made between January and March were between two and 2.9 per cent.

With inflation falling according to the retail price index, that finally meant that for many UK workers, the gulf between the cost of living and earnings had at least not widened any further. The last time this happened was as far back as November 2009, when pay rises were around 1.5 per cent and inflation stood at just 0.3 per cent.

Ken Mulkearn, IDS head of pay and research, explained that decreasing prices have played a bigger role than wage rises in keeping pay and inflation in line with each other.

“The main factor in the comparison with the cost of living is the fall in inflation, rather than any rapid acceleration in pay growth,” he said. “However, stronger economic growth may add to upward pressures, and the fact that the National Minimum Wage is set to rise by three per cent will likely have an influence.”

He added that should this trend continue, pay could surge ahead of inflation fairly soon. That chimes with projections recently published by the EY ITEM Club, which said that earnings will rise by 1.7 per cent over the course of this year. In contrast, the consumer price index – the UK’s other main inflation measure – will stand at just 1.6 per cent.

Perhaps the figures differ for statistical reasons – the ITEM Club takes average earnings, while the IDS figures are based on the median of just 107 pay settlements over the first three months of the year.

As a result, the ITEM Club figure is likely to have been pulled down by the number of businesses that will either stick to pay freezes this year or increase pay below inflation. Either way, it still looks as though UK employers are becoming more positive about the pay they offer their staff.