News – Inflation and talent shortages push companies to increase UK pay rises to 3.2% this year
UK companies significantly increased their expected pay rise budgets for 2022 in the second half of last year, as inflation and talent shortages created increasing wage pressure.
According to WTW’s (Willis Towers Watson, NASDAQ: WTW) latest Salary Budget Planning Report,1 anticipated pay rise budgets for 2022 rose from an average of 2.9% in July last year, to 3.2% by December. This is an even steeper increase when compared to actual pay rises awarded in 2021, which averaged 2.4% in the UK.
One of the main drivers of increased pay budgets has been the emergence of higher inflation, which is expected to average 3.4% this year, compared to 2.8% in 2021 and pre-Covid rates that were regularly under 2%.2 Over a third (37%) of businesses surveyed across the UK admittedthat they were concerned about inflation and the rising cost of supplies.
Another factor contributing to increasing wages is a shortage of labour and increased competition for talent, with over two-thirds (68%) of companies in the UK claiming to have concerns over a tighter labour market this year.
Paul Richards, Rewards Data Intelligence Leader Europe, WTW, said: “There seems little doubt that costs, wages and prices are going up this year. A shortage of labour in some sectors is driving up demand for skilled workers, and a push for growth in others is igniting a war for talent as companies compete to attract and retain employees who have more choice than at any point in recent years.
“Companies have responded quickly to these changes and it is rare to see anticipated pay budgets rise so sharply between July and December. In certain key technology focused industries, such as Fintech, Business & Tech consulting, and High Tech, wage increases are even higher as employers try to take advantage of strong growth opportunities and a limited pool of highly specialised employees.”
Globally, pay rises are anticipated to rise by 0.5% above inflation this year.
666 UK firms took part in the authoritative global study about salary budgets and recruitment by WTW, a leading global advisory, broking, and solutions company.