UK Firms Plan 3% Pay Rises Amid AI-Driven Job Cuts

TL;DR: British employers expect 3% wage increases over the next 12 months whilst one in six anticipate AI tools will enable headcount reductions. CIPD survey shows hiring intentions at weakest levels since the pandemic, particularly in the public sector, with concerns about government tax plans dampening recruitment.

British employers forecast modest wage increases alongside AI-driven workforce reductions, according to new survey data highlighting the dual pressures facing the UK labour market. The findings come as the Bank of England monitors wage growth for inflation signals and the government faces criticism over employment tax increases.

Wage Growth and Hiring Intentions

The Chartered Institute of Personnel and Development surveyed over 2,000 businesses, finding median expected basic pay increases of 3%—unchanged for six consecutive quarters. This contrasts with a Bank of England survey released Thursday showing wage growth expectations ticked higher to 3.7% for the three months to October, the highest reading in five months.

Overall hiring intentions registered around the weakest since the pandemic, particularly low in the public sector. CIPD emphasised concerns that Finance Minister Rachel Reeves should avoid further measures dampening hiring in her 26 November budget, following last year’s significant rise in employers’ social security contributions.

AI Impact on Employment

One in six employers expect AI tools will enable headcount reductions within the next 12 months. Of those, a quarter anticipate staffing reductions exceeding 10%, with junior managerial, clerical, professional, and administrator roles expected to be most affected.

James Cockett, senior labour market economist at CIPD, noted that people seeking jobs were already feeling the impact of slower hiring since Reeves’ first budget. “We need to see a stronger focus by the government and employers on longer-term workforce planning and investment in skills to help people use AI effectively in their roles or transition into different jobs or occupations as AI use grows,” he said.

Labour Market Context

Official labour market figures due Tuesday are expected to show slight slowdowns in wage growth. Economists polled by Reuters forecast regular pay in the three months to September increased by an annual 4.6%, slightly below the previous 4.7% rise.

British wage growth tends to exceed pay settlement growth, as the latter excludes gains made by workers moving to better-paid jobs. Although the Bank of England held interest rates at 4% last week and signalled potential cuts at its December meeting, it continues closely monitoring pay growth as an inflation indicator.

Looking Forward

The CIPD survey, conducted between 19 September and 14 October, captures employer sentiment during a period of uncertainty about AI’s impact on employment and government fiscal policy. The combination of modest wage growth, weak hiring intentions, and anticipated AI-driven job cuts suggests a challenging environment for jobseekers, particularly those in junior roles.

The data highlights the need for coordinated approaches to workforce planning and skills investment, enabling workers to adapt to AI integration rather than being displaced by it. Without such measures, the already-weak hiring environment risks further deterioration as automation accelerates.

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