Low inflation will mean highest wage growth for two years

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The highest net wages growth for two years is expected in 2014, despite companies suggesting they will reduce pay rises, figures have shown.

With inflation expected to average just 2.1% over the course of the year and UK businesses stating that they will award an average of 2.5% pay rises, net wages growth is predicted to stand at 0.4%, according to Towers Watson’s 2014 Salary Budget Planning report.

However the pay rise marks a 0.5% cut from last year’s average of 3% across all professional employee levels.

The UK economy is also anticipated to grow faster than wages in 2014 with 2.7% GDP growth predicted, up from 1.9% in 2013.

“Until this year the UK had consistently struggled with some of the highest inflation in Western Europe and as a consequence, wage increases were having little impact on living standards,” said Paul Richards, head of Towers Watson’s Data Services Practice in EMEA.

“However, with inflation falling, UK employees may find that their pay rises go a little further this year. Healthy economic growth predictions for the UK may also prompt a sustained increase in salary growth over the coming years.”

The report provides salary increase budget information for a large selection of economies across Europe, the Middle East and Africa, as well as projected inflationary movements and country GDP movements for the same period of time.

The UK’s predicted salary rises were consistent with other European countries including France, Italy, Spain, the Netherlands and Belgium but higher than pay rises offered in Switzerland and Ireland, which are at or below 2%, but both of which have significantly lower inflation rates of 0.2% and 0.7% respectively.