UK salaries rise by 1.7 per cent on low inflation

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UK households were slightly more positive about their finances in May than in the previous month, but the month still ranked as one of the most pessimistic since 2009.

UK employees in the private sector received a better-than-forecast average salary increase this year next year are set to be muted. 

ECA International’s Salary Trends report reveals most employees received a 1.7 per cent salary increase, ahead of the forecasted 1.1 per cent due to low inflation.

Real salary increase is based on the difference between the nominal salary increase – 2.5 per cent – and inflation – 0.8 per cent. 

Lower energy prices and cuts to VAT were two main factors contributing to lower inflation this year. 

A 1.3 percent real salary increase is expected for UK workers receiving a pay rise next year, which equates to almost £34.08 a month and approximately £408.99 per year before tax. 

Comparatively Europe saw a real terms salary increase of 1.5 per cent, the highest globally due to lower inflation on average. 

Workers in Ukraine received the highest increase of 3.6 per cent, but this is set to fall next year to 1.2 per cent as inflation is forecast to increase to six per cent. 

“Nominal salary increases are actually set to rise next year across Europe, from 2.0 percent to 2.5 percent on average, but many companies are still taking a fairly cautious approach and as the IMF expect inflation to return to normal levels next year, workers based in Europe will see a lower real salary increase as a result,” said Oliver Browne, remuneration manager at ECA International. 

Forecast real salary increases in Europe (Credit: ECA International)

While employees have benefited from low inflation, research shows a quarter of UK firms have plans to implement or continue a pay freeze into next year as the pandemic stunts the economic recovery. 

“Next year will also be hard for many workers as inflation is expected to rise again to 1.2 percent, while salary increases will remain flat at 2.5 percent – lower than pre-pandemic levels – and a quarter of companies still predict salary freezes,” said Browne. 

“However, with the expected roll out of vaccines and the potential end of pandemic restrictions in sight, there are some grounds for optimism that things will soon improve for employees.”