LONDON: British employers expect to raise pay by 3% over the coming year, the lowest planned increase in two years and down from 4% three months ago, a survey from the Chartered Institute of Personnel and Development showed on Monday.

The news is likely to reassure the Bank of England which wants to see pay growth fall back to more normal levels. It cut interest rates on Aug. 1 for the first time in four years, having raised them to a 16-year high.

A separate BoE survey published at the start of the month showed businesses intended to raise pay by 4.1%, also the lowest in at least two years.

"Falls in expected pay rises were anticipated now inflation is within a tolerable range for employees. However, many workers will still feel worse off than they did a couple of years ago, so other benefits ... are in employers' interest to help both support and retain staff," CIPD economist James Cockett said.

The CIPD survey was based on a survey of 2,032 employers across the private, public and voluntary sectors between June 17 and July 4, before finance minister Rachel Reeves approved pay rises of over 5% for many public sector workers.

Private-sector pay excluding bonuses was 5.6% higher in the three months to the end of May than a year earlier, its smallest rise since June 2022, according to official figures.

But this was still almost twice the increase the BoE thinks is consistent with low inflation and the central bank sees a risk that labour market problems will cause pay growth to slow less than it has forecast.

Official data due on Tuesday will show pay growth for the second-quarter of 2024, while figures on Wednesday are likely to show inflation rising back above its 2% target as the impact of lower energy prices fades. (Reporting by David Milliken Editing by William Schomberg)