Employers struggle to close the pay gap.

Despite a drop in inflation, employers are still finding it difficult to close the gap between basic slurry and the cost of living.

Last week it was announced that inflation dropped to 3% in April, the lowest for more than two years, however a survey by the CIPD found that 51% of companies are unable to predict whether salaries will even rise over the next 12 months, let alone increase in line with inflation.

The Labour Market Outlook showed pay award expectations over the last three months have fallen from 1.7% to 1.5% – just half the current level of inflation.

Perhaps surprisingly, it is private sector firms which are least certain about their ability to give pay increases over the next year. 21% of employers surveyed have already decided to postpone pay decisions until next year.

Among those companies that have been able to forecast a pay rise, the average award is below inflation at 2.6% and the main causes for the expected increase are affordability (62%), inflation (55%) and employee productivity and performance (52%).

Charles Cotton, rewards advisor at the CIPD, comments: “Our data shows that many employers are keen to raise pay in line with inflation but are struggling to close the gap as inflation remains stubbornly high. Line managers and HR professionals need to look at how they can continue to keep employees engaged and performing well in the absence of substantial pay rises, while at the same time limiting the impact of financial distress on employees by offering financial education, debt counselling and voluntary benefits packages.”

Fall in ‘real wages’

Average weekly earnings between April and June revealed an increase of 2.2%, yet this is less than half the rate of inflation, leading to a fall in ‘real wages’.

As the cost of living and inflation amplifies, wages aren’t rising relatively, creating a shortfall in disposable income. Consumers have less buying power and therefore have to cut their spending on non essential items.

Victoria Cadman from Investec, said “concerns about the growth outlook and the decline in real wages are weighing on the consumer”, signalling that consumers are reducing the amount they spend.

Consumer spending will be unlikely to recover in the near future, with the prices of electricity, food and petrol all rising.