Hay Group published its latest research into pay forecasts for 2011 in a report, Reward in 2011, which was released yesterday.
Whereas the Office of National Statistics reported on Tuesday that the consumer price index had increased to 3.7%, a 0.4% increase on November’s figure, Hay estimates pay will increase at a median of 2.5% in 2011.
Analysts, such as the research firm Capital Economics, have also said that the increase in VAT, which came into effect on 4 January, is likely to push inflation higher.
Public sector workers will be worst affected by the changes, according to Hay’s calculations, with pay for state employees expected to rise by an average of 0.5%.
However, its predictions for the world of business are more positive. The report notes improved confidence in the private sector, with six out of ten firms citing an upturn in performance since last year and the same number expecting an improvement in 2011.
More than 71% of private companies questioned said they expected to pay bonuses this year, an increase from 46% in 2010.
Some 93% of private sector employers said they would increase pay this year, although only 39% in the public sector said wages would rise.
And 72% of public organisations said they would reduce staff levels this year, with nine out of 10 saying they planned restructuring, redundancies, recruitment freezes or a review of employment terms.
Claudia Canavesio, reward expert at Hay Group, said: "Increasing wage budgets reflect gathering confidence in business conditions, but salary rises will remain behind inflation, representing a fall in real-term pay for UK employees in 2011.
"The sizable gap in predicted pay rises between public and private sector employees risks pricing public organisations out of the market for key talent.
"This, coupled with unsettling developments such as restructuring and the threat of redundancies, makes a potential ‘brain drain’ from public to private sector a very real threat."
The report is based on forecast data from HR and reward professionals in over 200 medium and large organisations, representing over one million UK employees.
