UK workers are getting an average overall salary hike of 2.9 percent in 2017, which is one of the highest in Europe this year. However, rising inflation of 2.8 percent, compared to 0.7 percent in 2016, will almost entirely wipe out these wage gains, according to research by Willis Towers Watson. Comment from Keith Coull, Senior Consultant in Data Services – Willis Towers Watson.

Its Salary Budget Planning Report, a global study of wage levels, also shows that the UK will see a similar average overall salary hike of 2.9 percent in 2018, against a forecast CPI inflation rate of 2.8 percent, leaving next year’s pay rise stuck once more at 0.1 percent in real terms when taking inflation into account. Spain was the only EU country to record a lower real terms figure than the UK in 2017 (0.0 percent). The UK’s inflation-adjusted rate is one of the lowest in Europe and well below the EU average of 1 percent. The country’s 2017 rate is outperformed by almost every other Western European economy, including: Ireland (1.9 percent), France (1.1 percent), Germany (1.2 percent), Italy (1 percent), Netherlands (1 percent), Denmark (1.2 percent), and Finland (1.0 percent).

In 2018, the persistently high inflation rate of 2.8 percent forecast for the UK market ensures its workers will continue to see their average pay stagnate in real terms compared to their peers in every other country in the EU, with the exception of Slovenia (-0.3 percent). In contrast to the UK market, the position is forecast to be relatively more positive in other European countries for 2018, including: Ireland (1.1 percent), France (1.2 percent), Germany (1.5 percent), Italy (1.7 percent) Netherlands (1.3 percent), Denmark (0.5 percent), Finland (0.7 percent).

Keith Coull, Senior Consultant in Data Services at Willis Towers Watson, said: “The UK jobs market has otherwise been robust with record employment rates and the lowest unemployment since 1975. But coming so soon after the post-crisis pay squeeze, this latest freeze on wages, driven by an inflation rate accelerating sharply since 2016 and showing no sign of slowing down, suggests the squeeze on pay and living standards is likely to intensify in the coming months.”

*All figures given as a percentage.

Commenting on the overall wage outlook for Europe shown in the report, Paul Richards, Director of Data Services, Willis Towers Watson, said:

“In the European labour market, real terms wages are still growing in 2017, but rising inflation means those real wage increases are less generous overall than in 2016. For example, 82 percent of countries in the EU28 will get pay increases this year above or roughly in line with the prior year increase. However, when taking rising inflation into account, there are no countries with real wage increases above or in line with prior year increases. The average EU28 real terms pay increase is now 0.9 percent, which has dropped from 2.6 percent in 2016. In 2018 inflation will remain a factor and the wage picture will be quite mixed across Europe. While nearly all of the EU28 will get a pay rise in 2018, only 11 countries will see a rise that is higher than in 2017.”

1. The Salary Budget Planning Report is compiled by Willis Towers Watson’s Data Services Practice. The survey was conducted in March 2017. Approximately 13,250 sets of responses were received from companies across 139 countries worldwide. The report summarises the findings of Willis Towers Watson’s annual survey on salary movement and reviews practices as a means of helping companies with their compensation planning for 2017 and beyond.

2. Consumer Price Index (CPI) inflation figures are compiled by the Economist Intelligence Unit (EIU). Figures as at April 2017.