British employers expect to raise pay by 5% over the coming year,representing the highest increase in at least a decade, a new survey has found.

Counteroffers are also increasingly being made to keep staff who are tempted by higher wages from rival firms, the study by the Chartered Institute of Personnel and Development (CIPD) found.

The CIPD said human resources executives expected to increase basic pay rates by a median of 5%. This is the same as the previous two quarters and the joint-highest readings since the survey started in 2012.

The figures continue to pile inflationary pressures on employers who are struggling to keep up with the current job market.

Expectations on the rise

Pay expectations in the public sector rose to 4%, the highest documented by the CIPD, from 3.3%.

The survey of 2,000 employers was conducted between June 9 and July 5, just before Prime Minister Rishi Sunak offered teachers, doctors, and other public-sector workers a 6% pay increase.

Private-sector wage growth expectations of 5% found by the CIPD were in line with those in a recent Bank of England survey of businesses.

Employers face a challenge

The Band of England (BoE) stated on 3 August that pay growth had failed to slow, creating a risk of persistent high inflation and higher interest rates.

Previously the governor of the BoE had said: "We cannot continue to have the current level of wage increases.

"We can't have companies seeking to rebuild profit margins which means prices continue to go up at their current rates... the current levels are unsustainable".

Growth in earnings excluding bonuses - which typically runs slightly higher than pay settlements - was7.3% from three months to May, surpassing inflation for the first time in 18 months.

Pay increase only a short-term solution

The CIPD said businesses were also becoming more likely to match or exceed pay offers by rivals for their staff.

Two-fifths of firms said they had made a counteroffer to keep staff in the past year, and just over half of those firms said they were resorting to counteroffers more than previously, compared with 9% who said the opposite.

Where counteroffers were made, 38% matched the competing salary, with 40% going above it. Despite this, a third of employers believed counter offers were ineffective at keeping their staff long-term.

The CIPD said:

"For some employers, counteroffers may only be valuable as a short-term option and... employees will move if wider aspects of the job, such as workload, autonomy and environment, don't meet their expectations."

The CIPD also found that 57% of employers said they have hard-to-fill vacancies, and of those, two in five said they would raise wages this year to attract workers.

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