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Pay growth expected to remain at 1.5% to 2.5% in 2016

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The rate of growth in December was the slowest it has been in more than two years

Pay growth is expected to remain at 1.5% to 2.5% in 2016, according to the Recruitment and Employment Confederation (REC) and KPMG research Report on Jobs.

The report used an index that shows an increase as a figure above 50 and a decrease as a figure below 50. Salaries awarded to staff placed in permanent jobs increased in December to 58.7 in the index. However, the rate of growth was the slowest it has been in more than two years, and down from 61.8 in August 2015. Temporary or contract staff hourly pay rates increased at the weakest pace in 21 months, now at 55.3 down from 56.7 in August.

Demand for staff remained considerably stronger in the private sector than the public sector during December. December data also indicated a rise in demand for permanent staff, up to 55.5. The strongest growth was for IT and computing workers, just ahead of executive/professional and accounting/financial staff.

Bernard Brown, partner at KPMG, said that in the wake of several high-profile breaches companies are investing heavily in their cyber security teams. “This hiring boom has caused a skills shortage in the sector, with recruiters struggling to find enough candidates qualified in IT security,” he said. “Faced with such stiff levels of competition businesses need to rethink their recruitment strategy. As well as hiring talent to build up their in-house defence capability they need to upskill the staff they have, or risk losing them to a competitor more willing to make an investment in their careers.”

REC chief executive Kevin Green said that while the UK labour market is in great shape at the start of 2016 some “major challenges” lie ahead.

“Skill shortages are a real threat to continued growth in many industries,” he said. “With talent at a premium employers will try to attract staff by increasing starting salaries. On general wage growth, as many businesses align annual pay rises to the rate of inflation, we anticipate that growth will remain at 1.5% to 2.5%.

“Businesses will need to manage the introduction of the National Living Wage, which will also have a major impact on pay levels. We wait with some trepidation to see the effect it will have on demand for staff, particularly in low-pay sectors such as healthcare.