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Employers in the UK plan to give their staff an average annual pay rise of 2.9% in 2022, amidst signs of strength in the labour market following the turmoil of the global pandemic.

The rise is an improvement on the 2.4% average increase paid this year and, with inflation forecast at 2% in 2022, provides workers with nearly a full percentage point real terms rise.

It comes as the proportion of businesses expecting to freeze pay altogether is set to fall from over 10% this year to 1.7% in 2022.

Some industries are planning to be more generous than others. Average rises in 2022 are set to be higher in the media (3.3% rise), leisure and hospitality (3.2%), and high tech (3.1%) sectors.

Workers in banking (2.3%) automotive (2.4%) and chemicals (2.5%) are due to fare less well.

725 UK firms took part in the authoritative study about salary budgets and recruitment by Willis Towers Watson, a leading global advisory, broking, and solutions company.

In 2021, UK businesses fought to attract, motivate and retain the best talent by paying top performers a pay rise that was 2.6 times greater than that given to those getting average performance ratings.

Paul Richards, Data Services Leader EMEA, Willis Towers Watson, said: “As the COVID-19 threat starts to recede and the economy starts to recover, we’re seeing significant year-on-year improvements in pay rises. Employees in some industries are faring better than others, but these are often the industries that were hardest hit by the pandemic, such as leisure and hospitality.”

“Overall the outlook for salaries is strong as businesses start planning budgets for 2022 and many are keen to retain top performing staff with performance-related pay as key areas of the employment market start to hot up.”

The study revealed clear signs of optimism and recovery among employers. Over half (54%) of UK firms said their business outlook is ‘ahead’ or ‘well ahead’ of where they thought it would be, while just 3% said it was below expectations.

And a third (32%) plan to recruit more staff in the coming 12 months, while less than 7% expect to cut headcount.

Nearly half of firms said they are trying to fill roles in IT (47%) and sales (46%), while engineering (45%) and other technical skilled trades (36%) are also hotspots.

“Our data shows that the employment market looks optimistic and the outlook for business is better than many expected,” said Richards. “Many organisations are keen to drive recruitment in sales, IT and roles with technical skills in order to take advantage of the anticipated recovery.”

See our Business Advisory pages for how we can help you plan for 2022

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