The introduction of the compulsory National Living Wage will cause UK salaries to rise at a far slower rate than forecast, according to the CIPD.
However, the HR body believes that low inflation will help to ease the blow for average earners.
The Office for Budget Responsibility (OBR) and the Bank of England originally predicted that average earnings will grow by around 3.5% in 2016. But Mark Beatson, Chief Economist at the CIPD, described this as “very optimistic.”
Echoing earlier research by Korn Ferry Hay Group, the CIPD expects that salaries this year will only increase by 2% on average, although continued low inflation means that employees will still feel better off.
“Our research shows pay expectations for the year ahead centred on a 2% increase,” Beatson said, “although with inflation expected to average 1% in 2016, most private sector employees will still see the value of their salary increase.”
Beatson has predicted that while the introduction of the compulsory Living Wage will boost average earnings, costs such as the Apprenticeship Levy will restrict how much employers can actually afford to pay.
The CIPD has also predicted the creation of a further 500,000 jobs in 2016. If this comes to pass, unemployment will fall to below 5% for the first time in a decade.
This could intensify the nationwide skills shortage and push wages up. Yet the CIPD believe that low productivity rates are the real issue.
Beatson says “with record levels of net migration into the UK increasing the supply of labour, it doesn’t look like we are going to see a skills crunch any time soon.”
“Investment in leadership and line management capability is integral to getting the best out of people, and apprenticeships will have little impact on addressing this key skills deficit,” Beatson said.
“While we now have seen two quarters of productivity growth, there’s clearly still work to be done to make this sustainable, which is the only way of delivering improved living standards in the longer term.”