Firms are displaying "cautious optimism" about the prospects of pay rises this year, although continued uncertainty over the economy is moderating wage forecasts, according to a new report.
Research among 1,000 employers by the Chartered Institute of Personnel and Development (CIPD) showed that the worst may now be over, but uncertainty about how fast the economy will improve is acting to moderate pay forecasts and leading many employers to hedge their bets on the outcome of the final decision.
The last quarter has seen pay intentions reach their highest level since spring 2009, with the expected mean basic pay settlement at 1.7%, compared with 1.5% in the previous quarter and 1.3% at the same time last year.
In the private sector, a third of employers predicted a pay rise, unchanged from the last quarter, with the average increase creeping up from 2.1% to 2.2%.
Among those planning to increase pay, manufacturing and production firms are forecasting the highest rises, at 2.9%, followed by those in the service sector (2.7%), although this is still below the rate of inflation.
The replacement of a pay freeze with a 1% pay cap in the public sector has seen the proportion of employers forecasting a pay increase in this sector rise from 12% to 30%, with average public sector pay increases rising from 0.3% to 0.8%.
On average, 16% of all employers predict a pay freeze for the coming year, but this ranges from 9% in the private sector to 40% in the public sector.
Charles Cotton, CIPD rewards adviser, said: "While the predicted increases in pay settlements reflects a cautious optimism among members in the private sector that the worst may now be over, uncertainty about how fast the economy will improve is acting to moderate pay forecasts and leading many employers to hedge their bets on the outcome of the final decision.
"As we move further into the pay round and as organisations get a better idea of how well they and the economy are likely to perform, we should see fewer feeling unable to predict the outcome of their annual pay decisions.
"Across all sectors, and whatever pay decisions are predicted, it's vital that employers maintain an honest line of communication with employees in order to keep staff motivated and engaged."