In March 2022, the UK’s inflation hit a record-breaking 7%, the highest for three decades. This has prompted a huge rise in the cost of living, with the consumer price index (CPI) set to reach 9% – an unprecedented high.
All of this prompts the question: should companies be increasing employee salaries with inflation? We break down the issue for you.
How bad is the UK’s inflation problem?
Many factors have impacted the rising cost of living in the UK, including the Covid pandemic and subsequent supply chain problems, rising energy prices, and the war in Ukraine. This is causing a record-breaking rise in inflation; for comparison, the last time inflation surpassed 7% was March 1992.
The situation is not expected to get any better, either. The Bank of England has warned that inflation could hit 10% later in 2022, meaning everyday costs are only going to increase.
The benefits of raising salaries
Inflation also poses a problem for companies, who will increasingly find workers shopping around for new jobs based on potential salary gains, in order to keep up with the rising cost of living. But are there any benefits to increasing wages with inflation?
Increase employee retention
Close to 77% of UK professionals plan on switching jobs this year, with the second-most reported reason for this being the chance to find a higher salary. Giving employees a raise now will show that you value their work, making them less likely to leave.
Show you empathise
Raising salaries with inflation will also show your employees that you empathise with their situation. 83% of UK adults noted an increase in their costs in March 2022, meaning almost all of your employees will be feeling the strain. Offering a raise could foster increased respect and loyalty by showing that you care about them and their situation.
Improve your reputation
Finally, increasing wages will likely also improve your company’s reputation. If you’re looking for standout talent in the future, your decision to assist with the rising cost of living could be a reason that someone chooses to work for your business and not a competitor.
Should you increase salaries with inflation?
On the whole, companies are choosing not to raise wages in line with inflation. In fact, regular pay for UK workers has actually fallen by 1% over the last year when you consider the drastic rise in inflation.
However, there are evident benefits to raising salaries, such as increasing employee satisfaction. In the end, the decision all comes down to what you believe your business can afford at this time and whether this is justified by what you might gain from the increase.
Inflation undoubtedly affects businesses just as much as it does workers, so you’ll have to evaluate whether employee satisfaction and company reputation are areas of your business that also need some work.
