UK pay rates predicted to overtake rest of Western Europe ⁰

Latest figures from the ONS show that after several years of pay rises at or below the level of inflation, the UK has seen average pay rates grow at the fastest rate since 2009. Unemployment rates are unchanged at 5.5 percent compared with February to April 2015 but lower than for a year earlier (6.2 percent). Comparing May to July 2015 to a year earlier, both total pay (including bonuses) and regular pay (excluding bonuses) for employees in Great Britain increased by 2.9 percent. According to the latest Salary Budget Planning Study from Towers Watson’s, this upward trend will continue, with British workers set to enjoy a boom in real-terms pay increases in 2015. The study, primarily covering private sector companies, shows that average UK pay rises of 3 percent, coupled with record low annual inflation of 0.2 percent, will outstrip those enjoyed by workers in all other major European economies.

Average pay rises in Germany are expected to be closest to the UK level, at 2.9 percent this year with slightly higher inflation of 0.6 percent. However companies in France, Spain, Italy, the Netherlands, Belgium, Ireland, Switzerland, Portugal and Greece have all budgeted for lower employee pay increases of between 2 percent and 2.6 percent this year.

Paul Richards, head of Towers Watson’s Data Services Practice for EMEA said: “In 2015 many employees will feel the tide has turned. A combination of decent pay rises and record-low inflation means that British employees are starting to see a real rise in their income after years of frustration. The outlook in the rest of Western Europe is more muted in terms of pay rises, but in all of these countries pay rises are set to significantly outstrip inflation, which has not always been the case over the last few years.”

The outlook in the UK next year is very similar in terms of wage rises but with inflation anticipated to rise steeply from 0.2 percent to 1.5 percent meaning wage rises in real-terms will feel lower. A similar pattern is expected across Europe in 2016, with the UK and Germany still expected to lead the region with pay rises of 3 percent, compared to 2 percent to 2.8 percent elsewhere. Inflation rates are also expected to creep up across the continent to between 1.2 percent and 1.6 percent, apart from in Spain, Switzerland, and Greece where inflation is expected to remain under 1 percent.

Paul Richards said: “Even if inflation rises to 1.5 percent next year as expected, this is still an historically low level. By comparison, between 2011 and 2013 we were experiencing annual inflation of between 2.5 percent to 4.5 percent and pay rises that barely matched or were significantly below, so 2016 is still expected to see a healthy real-terms growth in wages.”