UK firms plan 3% pay rises in coming year, see AI hit to jobs, survey shows

British employers anticipate a median 3% wage increase over the next year, according to a CIPD survey, which also reveals weak overall hiring intentions, particularly in the public sector. A notable concern is the projected impact of AI, with one in six employers expecting headcount reductions, some by over 10%, primarily affecting managerial and administrative roles. The CIPD warned against further government policies that could dampen hiring, while the Bank of England continues to closely monitor wage growth for inflation risks, despite recently holding interest rates.

Analysis

British employers anticipate a median 3% wage increase over the next 12 months, a figure consistent for six consecutive quarters according to the CIPD survey. This contrasts with the Bank of England's survey showing a higher 3.7% expectation for the three months to October, a five-month high, and official figures forecasting a 4.6% annual rise in regular pay for the three months to September. Despite the BoE holding interest rates at 4% and signaling potential cuts, it remains vigilant on pay growth due to its inflationary implications.

Overall hiring intentions in the UK are at their weakest since the pandemic, particularly within the public sector, signaling a cautious employment outlook. A significant concern is the projected impact of artificial intelligence, with one in six employers expecting headcount reductions in the next year. Of these, a quarter anticipate staffing cuts exceeding 10%, primarily affecting junior managerial, clerical, professional, and administrative roles.

The Chartered Institute of Personnel and Development (CIPD) has cautioned against further government measures that could dampen hiring, specifically referencing previous increases in employers' social security contributions. This fiscal pressure, coupled with the observed slowdown in hiring since the finance minister's initial budget, underscores the need for strategic workforce planning and investment in skills to mitigate AI's disruptive effects. The moderately negative sentiment and cautious tone surrounding these developments suggest ongoing headwinds for the UK labor market.

Key Decisions for Investors

• Investors should closely monitor upcoming UK labor market data and Bank of England communications for shifts in wage growth trends and their implications for monetary policy, given the mixed signals on pay expectations.
• Evaluate portfolio companies' exposure to AI-driven workforce reductions, particularly in administrative and junior managerial roles, to assess potential impacts on operational efficiency and employment costs.
• Consider the potential for further government fiscal measures, such as changes to social security contributions, which could influence corporate hiring and investment decisions in the UK.