Your Next Pay Rise Could Feel Like A Pay Cut: UK Employers Expect Smaller Pay Rises Next Year

British employers are planning to pay modest increases next year, according to new data from HR insights company Brightmine. It shows a trend of businesses cutting back on salary growth amid rising operating costs and greater economic uncertainty.

Brightmine's survey suggests approximately 42% of employers expect pay rises to be around 2-3%. Meanwhile, another 42% anticipate it to be around 3-4%.

This shows a significant shift from higher pay raises experienced in previous years, where increases between 3% and 4% were relatively common. The data also suggests how employers are taking a more guarded approach when it comes to pay decisions.

However, even though future pay plans are more restrained, current pay levels haven't fallen sharply. As per Brightmine, the median pay raise for three months up until the end of May was 3.2% and was similar to the previous three-month period. This is based on the 251 pay settlements that covered approximately 3.2 million workers across the UK, suggesting that although the pay growth is still positive, it's not rising as quickly as before.

Employers Are Cautious on Pay as Economic Pressures Persist

Recent pay deals also reflect how many employers are still under pressure as cost pressures limit pay growth. Uncertainty from global tensions, such as the US-Iran conflict, is affecting business confidence.

Additionally, companies face higher business costs and increased statutory wage rates that were implemented last April. All of these mounting pressures make it more challenging for employers to offer bigger pay rises in most sectors.

Employers Are Factoring Inflation Pressures with Cost Constraints

Sheila Attwood, Brightmine's Senior Content Manager for Data and HR Insights, says that the latest figures suggest that many organisations are settling into a pay position that's more sustainable after several years of elevated wage growth as they prioritise financial stability.

According to Attwood, 'Although inflation pressures have not disappeared, employers are clearly weighing those concerns against affordability constraints and a weaker labour market outlook. The fact that almost half of organisations are awarding lower increases than last year highlights the continued emphasis on pay restraint during 2026.'

What It Means for Household Finances and Spending Power

This data highlights the growing worries about the strength of household demand. A lower pay can also affect household spending power. As wage increases stall and economic uncertainty continues, many households across the UK will feel the effects on their incomes if inflation doesn't fall as expected. Many will find it increasingly difficult to keep up with the everyday costs.

Additionally, consumer confidence isn't at an all-time high. As attention shifts with a possible change in government, where Andy Burnham is likely seen as a leading candidate to succeed Keir Starmer as the Labour Party's leader. This change is also creating uncertainties about what direction policy may take next, making households and businesses more cautious. Many may feel less confident about spending, and businesses may also delay decisions until there's more clarity about the current political landscape.