Firms will relax grip on pay, says CBI

However, the CBI said that rises will be limited by higher costs for holiday pay and workplace pensions, as well as weak productivity growth.

Forty-three per cent of firms taking part in a survey said they intended to raise salaries at their next pay review by the same rate as the retail price index, and 12 per cent said they would increase pay by more, the CBI said. That compared with 42 per cent and seven per cent respectively in the same survey conducted a year ago, it said.

“Gradually, as the recovery has become more firmly embedded, the number of companies planning to freeze pay has decreased significantly and we have seen more companies feeling confident enough to start to increase pay levels,” CBI deputy director-general Katja Hall said.

The Bank of England is watching wage growth, which has lagged inflation for much of the period since the financial crisis but has recently shown signs of recovery, as it considers when to start raising interest rates.

The RPI measure of inflation stood at 2.0 per cent in October. The CBI said companies expected employment costs to rise as a result of changes to the way holiday pay is calculated and a new requirement on employers to put employees into workplace pension schemes. Ms Hall said businesses were also worried about talk from politicians of more curbs on immigration, which could make it harder to find the right staff, and about pay levels.