Inflation likely to continue to outstrip pay in 2023

Data shows that pay awards are worth a median 5% in the three months to the end of December 2022, unchanged on the previous month and more than double that recorded in the same period in 2021 (2.3%), illustrating the major shifts in the pay setting scene over a turbulent last 12 months.

The gap between pay settlements and inflation – which has fallen for the second consecutive month in December to 10.5% - will likely continue over the coming 12 months, the firm said.

More than a quarter of all pay reviews take effect from January each year and whilst it is unlikely that pay will rise substantially in the coming months, the figures show that there also isn’t any sign of settlement levels dropping to where they were in the same period last year.

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Based on the outcome of 36 pay awards with effective dates between 1 October and 31 December 2022, covering 64,945 employees, the research also found that the interquartile range has widened. Last month, four percentage points covered the middle half of wage deals (7% upper quartile, 3% lower quartile). Now the gap between the top and bottom quartiles has widened to five percentage points (8% and 3% respectively).

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It also found that two-thirds of deals are higher. Taking a matched sample approach, where the 2022 pay review is compared to the 2021 increase for the same group of workers, 65.2% are higher in the three months to the end of December 2022 than in the same period a year ago.

In the private sector, the value of the median base pay award over the year to the end of December 2022 was 4%, exactly double that of a year ago. The chemicals, retail and transport sectors all saw a median basic pay award of 5% or more, the highest within the private sector.

However, the public sector has seen an even more dramatic movement in the median basic pay increase over the past year, rising to 3.8% in December 2022 from just 1.4% in 2021. This is likely due to many settlements being weighted in favour of employees at the bottom of pay structures.

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Sheila Attwood, XpertHR senior content manager, data and HR insights, said: “The cost-of-living crisis will continue to be front of mind for many pay setters as the turmoil of 2022 continues unabated into the new year. As the UK is faced with a period of recession, it is vital that employers seek to support their employees in the best way they possibly can, whilst doing their utmost to get the balance right between pay expectations and affordability.

“We have noted previously that several organisations have made off-cycle pay awards to help employees deal with the cost-of-living crisis. It will be interesting to see if this continues into 2023 or whether the forecasted fall in inflation from the middle of next year, together with the current 5% median pay award becoming the norm as we predict, will obviate the need for such measures.”

On Tuesday, figures from the Office for National Statistics (ONS) showed wages in the UK grew at the fastest rate in 20 years in the past year, but still fail to keep up with inflation, according to the latest figures from the Office for National Statistics (ONS).

Wages rose 6.4% in the three months to November from the same period a year earlier, the fastest growth since 2001, but real wages dropped by 3.8% as pay failed to keep up with the increasing cost of living.