Growth in total pay, including bonuses, was 5.9% in the final quarter of 2022, while pay growth excluding bonuses was 6.7%, according to the latest labour market data from the Office of National Statistics (ONS).
For pay excluding bonuses, this was the highest growth rate seen outside of the Covid-19 pandemic.
In the public sector, the growth rate was less extreme at 4.2%, while the private sector saw a growth rate of 7.3% on average.
However, when these figures were adjusted for inflation, growth in both total and regular pay, including and excluding bonuses, in fact fell during this period, by 3.1% and 2.5%, respectively. This was among the largest falls in growth since ONS records began in 2001, outstripped only by 4.5% in February to April 2009.
Greg Guilford, CEO of HR Solutions, part of WorkNest, said: “It’s positive to see that employers are minimising the impact of the cost of living crisis on employees; however, there is still a gap between the rising costs and employees’ salaries. We’re finding that many small business owners might be unable to offer excessive salary increases, as they don’t have the budgets to compete with larger corporations who may be able to offer those higher salaries.”
Guilford added that for those employers that cannot provide higher pay, shares or employee ownership schemes might help with motivation, financial security, and engagement with business performance.
He said: “Businesses should also consider setting up employee engagement groups or sending out an employee survey to determine what their workforce needs. For example, one person might want an increase to their hourly wage, whereas another might be looking for a greater pension contribution or shopping discounts. Another might want to feel heard, need signposting to additional services or want emotional support.
“Businesses need to strike a careful balance between increasing salaries and profitability to ensure the business can weather the storm of potential economic challenges ahead.”
Steve Leach, regional managing director, UK and Ireland at AMS, said: “What the UK’s firms can’t afford now is a repeat of the talent investment withdrawal we saw both at the beginning of the pandemic, and in the 2008 financial crash.
“The talent climate is particularly volatile at the moment and the cards are still very much in the hands of the candidates. With forecasts from the National Institute of Economic and Social Research (Niesr) now indicating that the UK will avoid a recession, firms need to invest in attracting and retaining talent and rebuilding skills to boast economic growth and rebuild Britain’s status as a skills powerhouse.”