Pay to rise by just 1% in the next year, according to forecast

Wages are expected to rise by only 1% in the next year because of an oversupply of job applicants, according to a new forecast.

The report, by the Chartered Institute of Personnel and Development (CIPD) and staffing group Adecco (Swiss: ADEN.VX - news) , said a strong workforce - boosted by an increase in workers from the European Union - means 24 applicants are chasing every low-skilled job, there are 19 candidates for every medium-skilled vacancy and eight for every high-skilled post.

It said the weak outlook for pay is also partly due to uncertainty over Brexit and access to the single market.

The 1,139 employers surveyed also cited the national minimum wage as a "brake" on pay growth and described costs related to the introduction of automatic pension enrolment as a "challenge".

In addition, the study found employees' pay expectations are weaker this year compared with last year, which may suggest that employers are not coming under any additional pressure to raise pay from workers, despite falling unemployment.

The CIPD also said employers had become "more pessimistic" during the last six months as the economy slowed.

Pay increases of 1% would lag further behind inflation which currently stands at 2.6% and is expected to hit around 3% - as prices continue to feel the effects of a weaker pound since the EU referendum which has pushed up import costs.

Gerwyn Davies of the CIPD, the professional body for human resources employees, said: "Predictions of pay growth increasing alongside strong employment growth is the dog that hasn't barked for some time now, and we are still yet to see tangible signs of this situation changing in the near-term.

"The facts remain that productivity levels are stagnant, public sector pay increases remain modest while wage costs and uncertainty over access to the EU market have increased for some employers.

"At the same time, it is also clear that the majority of employers have still been able to find suitable candidates to employ at current wage rates due to a strong labour supply until now.

"The good news is that the UK labour market continues to go from strength to strength."

But he cautioned: "Against the backdrop of future migration restrictions and a tight labour market, the need for a workforce development plan is greater than ever."

Adecco's Alex Fleming added: "Employers continuing to hire isn't, necessarily, an indication that they are convinced of a bright economic future, rather that nothing significant has changed in recent months.

"Many employers are getting on with the day-to-day hiring required to keep their businesses ticking along until they have enough information to build concrete recruitment plans."