Pay deals highest in 30 years as inflation races ahead

UK employees are seeing their pay increases overtaken by price rises, new figures show.

The average UK pay deal remained at 4% in the three months to May 2022, unchanged from the previous month. It's the highest level since 1992, but less than half the rate of inflation.

Figures from HR solutions provider XpertHR show that the median pay settlement in March-May 2022 exceeded the level recorded in the same period a year ago (2%) and in the first quarter of this year (3.2%), as employers increased pay to help offset the rising cost of living and to address retention challenges.

The range of pay awards has also risen, with the middle half of deals worth between 3% and 5.8%.

More than 80% of pay awards amounted to a higher increase this year than the same employees received last year.

The most common award was 3%, representing almost one in five settlements, and only 3.4% of reviews resulted in a pay freeze.

However, with the consumer prices index (CPI) measure of inflation rising to 9.1% in the 12 months to May, from 9% in April and 7% in March, there is still a long way to go for wages to match the increase in living costs.

The report comes after a Bank of England business survey in May showed that employers were not planning a further acceleration in pay rates.

Seeking to allay concerns about the wider economic impact of bigger pay rises, a recent letter sent to Boris Johnson by 67 economists said there was no wage-price spiral in the country and keeping wages down would risk pushing the economy into a recession.

Pressure is increasing in the public sector, with unions warning that teachers and nurses could join rail workers in strike action over pay.

"Under-pressure health, care, school and council services desperately need staff to be given a pay boost that matches runaway prices," said Jon Richards, assistant general secretary of Unison.

The National Education Union criticised government proposals for a 3% pay increase for most teachers in England, and called for an "inflation-plus increase for all teachers".

"Despite pay awards reaching record levels not seen for 30 years, any marginal increases we are seeing are outstripped by the sheer pace of inflation," said Sheila Attwood, XpertHR pay and benefits editor.

Attwood added that wage rises are likely to remain "steadfastly below" the rate of inflation for the foreseeable future.

"With the threat of further inflationary pressure, businesses that are unable to match pay with inflation should consider where and how they can help employees. Other benefits and financial guidance will not only help retain top talent, but crucially it will help staff weather the worst of the cost of living crisis."