Despite a fall in pay budgets, lower inflation is set to ease cost of living pressures.

UK wages are set to rise at an average of 2.5 percent in 2014 with lower inflation leading to net wage growth of 0.4 percent, the highest level for two years, according to Towers Watson’s 2014 Salary Budget Planning report. Despite UK companies suggesting they will reduce pay rises from 3 percent last year to 2.5 percent this year across all professional employee levels, inflation is now expected to average 2.1 percent* over the course of 2014. The UK economy is also anticipated to grow faster than wages in 2014 with 2.7 percent GDP growth predicted, up from 1.9 percent in 2013.

Paul Richards, head of Towers Watson’s Data Services Practice in EMEA said: “Until this year the UK had consistently struggled with some of the highest inflation in Western Europe and as a consequence, wage increases were having little impact on living standards. However, with inflation falling, UK employees may find that their pay rises go a little further this year. Healthy economic growth predictions for the UK may also prompt a sustained increase in salary growth over the coming years.” The report provides salary increase budget information for a large selection of economies across Europe, the Middle East and Africa as well as projected inflationary movements and country GDP movements for the same period of time. The UK’s predicted salary rises were consistent with other European countries including France, Italy, Spain, The Netherlands and Belgium but higher than pay rises offered in Switzerland and Ireland, which are at or below 2 percent, but both of which have significantly lower inflation rates of 0.2 percent and 0.7 percent respectively. German and Swedish companies are offering amongst the highest average pay rises in Western Europe at around 3 percent and both countries also enjoy relatively low inflation meaning pay rises have a bigger impact on the cost of living.

Employees in Middle Eastern countries are predicted to continue benefitting from some of the highest pay rises in the region, with the United Arab Emirates, Qatar, Saudi Arabia, Oman and Lebanon at over 5 percent. Turkey outstrips all of these with a predicted increase at 7.5 percent. Only companies in Bahrain are anticipated to drop in the level of year-on-year salary increases to 4 percent. Carole Hathaway, Director of Towers Watson’s EMEA Reward practice, said: “The Turkish economy is predicted to grow steadily in the coming years but with inflation tipped to exceed 10 percent this year, even average pay rises of 7.5 percent will put pressure on employee living standards and company pay budgets. Elsewhere in the Middle East we’ve seen consistent wage rises of around 5 percent for the last few years but with stable inflation and strong economic growth predicted to continue these healthy wage levels look to be sustainable for companies.”