REAL wages are set to fall by 0.5% next year because pay rises will not keep pace with inflation, a new report predicts.

Research by Hay Group suggested that pay rises will average 2% in 2018 compared with an inflation forecast of 2.5%.

Hay Group, part of advisory firm Korn Ferry, said that in contrast wages in other European countries such as France and Germany will increase above the rate of inflation.

Benjamin Frost, of Korn Ferry, said: “2018 is set to be a tough year for for UK business. Companies need to think about how they target the limited money they have available for pay increases to the parts of the business where it will have the most impact on employee performance.

“Inflation is pinching wages internationally and Brexit (is) elevating levels of uncertainty. UK organisations will be forced to make crucial decisions about where money can be best allocated to boost employee morale.”