UK firms brace for modest 3% pay rises as one in six plan job cuts due to AI

9 November 2025

In the latest survey from Chartered Institute of Personnel and Development (CIPD), British employers revealed that over the next twelve months they anticipate wage increases of about 3 percent maintaining the same projected rate for the sixth consecutive quarter. At the same time, the survey exposed sharper concerns about labour market fragility: one in six employers reported that the adoption of artificial-intelligence tools will lead to workforce reductions, and of those, one-quarter expect those job losses to exceed 10 percent.

The study, conducted among more than 2,000 businesses between September 19 and October 14, found that basic-pay settlements remain anchored near 3 percent, even as broader wage-growth expectations tick up. A parallel survey from Bank of England showed employers’ expectations for pay growth reaching 3.7 percent in the three months to October the highest in five months.

Yet even these figures mask deeper structural pressures. While wage rises may hold steady, the survey flagged that hiring intentions are among the weakest since the pandemic, with public-sector firms particularly cautious. Employers cited heighted operational costs, resurgent inflation, and tax-burden uncertainty especially around forthcoming budget measures by Chancellor Rachel Reeves as dampening their readiness to bring in new staff.

The most striking revelation lies in the intersection of AI, jobs and workforce strategy. Among the firms anticipating workforce reductions as a result of AI, most expect staff cuts in junior managerial, clerical, administrative and professional roles segments traditionally viewed as relatively secure. The inevitability conveyed is that employers are using AI not just to boost productivity but to shrink head-counts, and that raises downstream implications for career pathways, skills investment and regional employment disparities.

For policymakers and business leaders this survey serves as both a warning and a call-to-action. CIPD senior economist James Cockett stressed the need for “long-term workforce planning and investment in skills” as the economy adapts to AI and automation. The message is clear: wage inflation may be contained for now, but underlying labour-market dynamics are shifting less hiring, more tech-driven substitution and elevated risk for certain job types.

And while consumers may find comfort in steady pay-rise projections, for businesses the modest 3 percent raise comes amid cost pressures that are anything but modest. Many firms signal they must make every pound count. Coupled with weak hiring intentions, the picture is one of cautious stabilisation rather than full-blown growth.

The employment implications are meaningful. Workers in segments vulnerable to AI-driven substitution may face stalling career mobility, fewer new vacancies and increased competition for existing jobs. Firms may rely more on internal redeployment or automation rather than external hiring. Regions heavily dependent on administrative, clerical or junior-professional roles may feel these shifts more acutely.

In the context of broader economic policy the findings have added weight. With inflation still above target and the Bank of England watching pay trends closely, wage-growth stability is one thing but rising automation and slower hiring may put downward pressure on demand growth. Consequently investors and analysts will monitor upcoming labour data and hiring trends with fresh scrutiny.

At the same time the interplay between pay, hiring and technology underscores a changing world of work one where wages might hold, but jobs behave differently. Firms are signalling not just that they will pay the same, but that they might employ fewer people that cost those same wages. The tension lies in sustaining income-growth narratives while adapting workforce strategy to tech-driven disruption.

Ultimately the CIPD survey paints a dual landscape: slow-burn wage growth and accelerating uncertainty about jobs and hiring. For workers the good news is that raises will continue. For businesses the news is bittersweet: cost pressures remain, while hiring and head-count decisions are being recalibrated. For policymakers the story is urgent: stable wages do not necessarily equate to stable employment.