Pay rises set to remain steady in 2026 despite evidence of labour market softening

Press Release September 2025

Most employers expect that pay will grow at much the same rate next year as it has done so in 2025, according to the findings of IDR’s latest survey of employers’ pay and reward intentions for 2026. Almost two-thirds (63%) of survey participants anticipate that their 2026 pay award is likely to be at the same level as this year’s, although a further 30% are forecasting a slightly lower increase.

This is in contrast to the findings of the equivalent survey last year, which found that 63% of respondents planned a lower award for 2025. ‘This could reflect the increased inflationary pressures that have arisen over the course of this year, which to a certain extent may be offsetting the downward pressures arising from the softening labour market,’ said Katherine Heffernan of IDR.

Nonetheless, responses to IDR’s survey suggest that a slow drifting downwards of pay award outcomes may yet occur. As with last year’s survey, the greatest proportion of anticipated pay awards are found in the 3% to 3.99% bracket (52% overall this year, with the majority of these falling between 3% and 3.49%, compared with 45% of respondents predicting outcomes at this level last year).^[1] However, many more awards are forecast to occur in the region of 2% to 2.99% (38%, compared with 22% last year) while the proportion of awards that are likely to be between 4% and 4.99% is much lower this time – just 8%, down from 26% in last year’s survey. Outcomes of 3.5% or above are largely the preserve of the private sector, and especially manufacturing and production – around a quarter of respondents here anticipate awards ranging between 3.5% and 3.99% and a further 8% anticipate that they will be worth between 4% and 4.99%.

[1]The combined values cited here differ from those in the chart due to rounding.

As with IDR’s equivalent surveys in previous years, ability to pay remains a key concern for participants, with 98% reporting that this will have a bearing on pay outcomes in 2026. The future business outlook is also an influential factor, for 86% of organisations, while just under three-quarters anticipate that increases to the statutory wage floor, for which the Low Pay Commission last month issued updated projections, equating to a 4.1% increase based on its central estimate of £12.71 an hour, will affect the level of their awards. Meanwhile 69% and 70% of respondents respectively cite inflation and the cost of living as influential factors, and market benchmarking (70%) and changes to the ‘going rate’ for pay rises (65%) are also likely to remain important considerations.

Around half (53%) of respondents to IDR’s survey anticipate that the recent changes to employers’ National Insurance contributions will have an influence on the overall level of their pay award next year and for 13% of organisations, this factor is likely to have the greatest single influence on pay outcomes – this comes on top of 55% of survey participants already having made a lower pay award to all staff in 2025 than would otherwise have been the case due to the increase in NI contributions. Meanwhile other key sources of pressure on pay include cost-of-living considerations (cited by 44% of respondents as the most influential factor) and pressure from boards to reduce wage costs (a fifth of survey participants).

Note for Editors

Incomes Data Research (IDR) is an independent research organisation specialising in the pay and employment field.

Our research covers pay, benefits, reward practice and HR policy. We provide HR professionals with information, data and analysis to help them make intelligent reward decisions. Our offering includes our quarterly e-bulletin ‘Pay Climate’ and our online interactive tool Pay Benchmarker.

For any queries relating to this research please contact Ken Mulkearn (07392 018997/ kenmulkearn@incomesdataresearch.com) or Katherine Heffernan (katherineheffernan@incomesdataresearch.com).