UK employers expect to increase salaries by 3 percent on average next year following a better-than-expected 2021, according to the latest Salary Trends Report by ECA International (ECA). Signalling a boost in confidence from businesses in the UK, this follows a 2.4 pay increase in 2021, despite the 1.3 percent increase originally forecasted by employers back in 2020.
ECA surveys over 370 multinational companies in over 70 countries and cities worldwide to discover their forecasted salary increases for the forthcoming year and the actual increases reported for the current year. Reviewing the salary increases against inflation, ECA reports on the real-terms salary increases for employees around the world.
ECA has been reporting on salary trends for over 20 years and, in their latest annual report, over a third (36 percent) of the European countries surveyed expect a real-terms salary increase of at least 1 percent in 2022 after inflation. Employees in the UK are expected to receive a 0.4 percent real salary increase, one of the lowest in Europe, but an improvement on this year’s 0.2 percent. This equates to approximately £127 per annum before tax* for a mid-level, full-time private sector role.
Employees in Bulgaria are forecast to receive the highest real-terms salary increase in Europe of 2.1 percent, as a result of lower inflation in the country compared to many parts of Europe, combined with a high nominal salary increase (4 percent). They are followed by employees in Ukraine, who can expect to receive a 1.9 percent real-terms increase in 2022 having been hit with a -1.0 decrease this year. The 9 percent salary increase forecasted by employers in Ukraine is similar to this year but inflation is expected to drop by 2.4 percent to a still high 7.1 percent.
2022 is looking more optimistic for the likes of Germany and Spain. After a difficult year in 2021 (real-terms decreases of -0.7 and -0.2 respectively), employees in Germany can expect to receive a real salary increase of 1.4 percent while those in Spain are anticipated to get a 0.9 percent increase after inflation, both higher than the UK due to lower inflation forecasted in many parts of western Europe for 2022.
Oliver Browne, Remuneration Manager at ECA International, explained: “Our survey indicates a positive outlook overall from employers, who have raised salaries more this year than they anticipated a year ago and are expecting to increase again next year. However, uncertainty remains as we continue to live with the pandemic, increased energy costs and supply chain issues that could impact businesses and employees in the year ahead.
“How salary increases affect the pockets of employees is dependent on how inflation changes over the next twelve months. The current forecast from IMF indicates the average real increase across Europe will likely be 0.9 percent, but this is dependent on inflation falling in the region next year. In the UK, at 2.6% inflation is expected to be higher next year, cancelling out much of the 3% salary increase that is anticipated for workers.”
Fewer pay freezes throughout Europe
16 percent of UK companies initiated a pay freeze this year, down from 35 percent in 2020. This is better than anticipated, as 25 percent of employers surveyed last year expected to freeze salaries in 2021.
Browne added: “The successful Covid-19 vaccination rollout across the UK and other rich nations played a major role in boosting business confidence and productivity and was a contributing factor in more companies awarding pay rises this year who had not expected to. With rising confidence and spiking inflation just 4 percent of UK businesses expect to freeze pay in 2022.”
ECA’s report shows a thawing of salary freezes globally, as 11 percent of businesses worldwide froze salaries this year, versus 38 percent of businesses in 2020. The percentage of salary freezes is expected to drop to pre-pandemic levels of just 3 percent worldwide in 2022.
However, bucking the global trend, a larger percentage of businesses in Qatar and Oman are expected to implement salary freezes in 2022 (20 percent).
How employee buying power across Europe was affected by inflation in 2021
Salaries in Greece fared the best across Europe this year, where employees received a 2.3 percent real-terms increase in salaries because of very low inflation. In Bulgaria, salaries rose by 1.4 percent in real terms while employees in Switzerland experienced a real-terms increase of 1.2 percent.
“More than half (56 percent) of the European countries surveyed reported real salary increases in 2021, despite the significant impacts from Covid-19 on international travel and tourism, office closures and supply chain issues.
“Greece’s swift decision to cancel large-scale events across the country for example, prior to any Covid-related deaths, may have contributed to the more positive real-term salary increase for employees compared to others in Europe, and allowed them to open their borders to international travellers quicker compared to many of their neighbours” explained Browne.