UK employers plan 3% pay rises as AI job cuts loom and hiring slows

UK HR Outlook: 3% Pay Rises, Softer Hiring, and AI-Driven Headcount Risk

UK employers expect a median 3% increase in basic pay over the next 12 months, holding steady for the sixth straight quarter, according to the CIPD. Hiring intentions are among the weakest since the pandemic, with the public sector feeling it most.

One in six employers say AI will let them reduce headcount in the next year. Of those, a quarter expect cuts greater than 10%, with junior managerial, clerical, professional, and administrative roles most exposed.

What this means for HR

• Pay growth is cooling relative to last year's highs, but not falling off a cliff. A 3% settlement risks compression if top performers expect more.
• Hiring pipelines will be slower, so internal mobility and reskilling matter more. Expect tougher backfills and longer time-to-hire, especially in the public sector.
• AI is shifting job design now, not in five years. Role clarity, skills mapping, and fair selection processes are urgent.

Pay planning: Hold 3%, protect your talent

The 3% median sits below broader measures of wage growth captured by recent business surveys. The Bank of England saw wage growth expectations ticking up to 3.7% in the three months to October, while economists expect official regular pay growth to ease to around 4.6% year-on-year.

• Budget 3% as a baseline, but ring-fence funds for scarce skills and critical roles to avoid flight risk.
• Use spot awards or one-off payments to handle compression without locking in higher fixed costs.
• Make progression criteria visible. If you can't pay more now, show a path to earn it.

Hiring: Lower demand means smarter deployment

With hiring intent weakening, backfill approvals will face more scrutiny. Prioritize moves that create measurable productivity or cost savings within two quarters.

• Build an internal talent marketplace before you post externally. Lateral moves beat new headcount when budgets are tight.
• Standardize requisition business cases: outcome, timeframe, budget impact, and AI alternatives considered.
• For the public sector, plan longer lead times and earlier pipeline building with apprenticeships and returnships.

AI and headcount: Reduce risk, increase value

Expect AI to streamline routine tasks in junior and support roles first. That doesn't have to mean blunt cuts if you plan ahead.

• Run a task-level audit: which activities are automatable, augmentable, or uniquely human?
• Redesign roles around outcomes and higher judgment tasks; move routine work into shared services or automation.
• Create clear redeployment pathways with time-bound upskilling goals and success metrics.
• Update job architecture, selection criteria, and redundancy processes to stay fair and defensible.

Skills: Invest where AI meets your workflows

People can use AI well with the right training and guardrails. Prioritize skills that directly impact current workflows rather than generic "AI literacy."

• Focus on prompt quality, data hygiene, process design, and tool governance.
• Build role-specific playbooks for HR, finance, customer support, and ops to ensure consistent use.
• If you need structured paths, see curated options by role on Complete AI Training or browse the latest AI courses.

Policy watch: Budget signals matter

The CIPD has urged the Chancellor, Rachel Reeves, to avoid further measures that could dampen hiring in the Nov 26 budget, after last year's rise in employer social security contributions. If policy tightens, expect continued pressure on net hiring and a sharper focus on productivity per head.

90-day HR action plan

• Confirm your FY pay pot and identify roles at risk of compression. Pre-approve exceptions.
• Run a 2-week AI/task audit in two functions with high routine work. Pilot automations with clear KPIs.
• Set up a redeployment framework: target roles, training paths, timeline, and outcome tracking.
• Tighten req approvals: require an AI-alternative assessment and a 6-12 month ROI estimate.
• Update policies: AI use, data security, bias checks, and documentation standards.

Data notes

The CIPD surveyed 2,000+ businesses between Sep 19 and Oct 14. Median expected basic pay growth is 3%, unchanged for six quarters, while hiring intent is among the weakest since the pandemic and lowest in the public sector.

A separate employer survey showed wage growth expectations at 3.7% in the three months to October. The central bank held interest rates at 4% last week and signaled a possible cut at the next meeting in December, while watching pay growth for inflation risk.

Bottom line

Plan for 3% as your baseline, protect key talent, and treat AI as a catalyst for role redesign-not a blunt instrument. The teams that move first on skills and process will get more done with the people they already have.

Source: CIPD