The latest data from HR data and insights provider Brightmine suggests that UK pay rises have plateaued at 3 per cent this quarter, and its 2026 Pay Forecast research predicts they will hold steady at this level over the next 12 months.
The findings mark a return to pre-inflation levels after two years of historically high settlements. While most organisations will continue to award pay increases when reviewing pay levels in the year ahead, few anticipate matching inflation, as affordability and business performance rise to the top of decision-making criteria.
This means the vast majority of organisations expect to make pay awards at or below the value of last year’s increase – with 45 per cent forecasting awards at the same level, 32 per cent predicting lower awards, and only 23 per cent expecting higher ones.
After several years of inflation-led pay growth, the balance of factors affecting pay budgets has shifted. Organisations now cite affordability and employer national insurance contributions as the key downward pressures on pay awards, outweighing upward drivers such as industry pay levels and cost of living concerns.
While inflation remains a reference point for many businesses, 69 per cent will use the Consumer Prices Index (CPI) as their main measure when setting pay levels, rather than the Retail Prices Index (RPI).
Despite economic uncertainty, organisations are not signalling a return to widespread pay freezes. Most plan to maintain pay review cycles, with an increased focus on alternative reward mechanisms such as performance recognition, benefits enhancements, and skills-based hiring.
“After two years of record-breaking pay awards driven by inflation, 2025 has seen a clear reset,” said Sheila Attwood, Senior Content Manager, Data and HR Insights at Brightmine. “Employers are now operating in a more balanced environment, where affordability and performance are shaping pay budgets far more than headline inflation figures.
“The next year will test organisations’ ability to remain competitive while managing tight budgets,” Attwood adds. “We’re seeing a growing focus on benefits, recognition and skills-based pay as employers look for new ways to attract and retain talent without overextending financially.”
