LONDON – British employers are likely to maintain pay awards at around 3% over the next year as economic caution prevails and the impact of recent high inflation continues to recede, according to a new report by data and research firm Brightmine.

The findings highlight growing restraint among UK businesses in 2025, with many employers prioritizing cost control and financial stability amid uncertainty surrounding the upcoming UK budget and the Bank of England’s interest rate outlook.

Cautious Outlook on Wage Growth

Brightmine’s latest survey found that only 23% of UK employers expect to raise pay awards over the coming year, while 45% anticipate no change and 32% foresee lower settlements. The data suggests a prolonged period of wage restraint as companies grapple with tight budgets, higher operating costs, and slowing demand.

In contrast, average pay awards reached 6% in 2023, driven by record inflation that peaked above 11% in October 2022, following Russia’s full-scale invasion of Ukraine.

Inflation and Budget Pressures Influence Pay Decisions

The forecasted 3% average pay award remains below the latest UK inflation rate of 3.8%, recorded in September 2025, indicating that real wage growth will remain negative for many workers.

Brightmine noted that affordability concerns and the impact of higher employer social security contributions—introduced by Finance Minister Rachel Reeves in her 2024 budget—are key factors limiting pay growth.

“The next year will test organisations’ ability to remain competitive while managing tight budgets,” said Sheila Attwood, Brightmine’s senior content manager. “We are seeing a growing focus on non-monetary rewards, such as benefits, recognition programs, and skills-based pay structures.”

Pay Awards Stabilize at 3% in Recent Quarters

According to Brightmine, average pay awards held steady at 3% during the three months to the end of September 2025, continuing the trend seen throughout the year.

The firm’s forecast draws from research conducted in August and September, covering 213 UK organizations with a combined workforce of 600,000 employees across multiple sectors.

Bank of England and Labour Market Implications

The Bank of England (BoE) is closely monitoring wage growth as it assesses inflationary pressures ahead of future interest rate decisions. Governor Andrew Bailey recently noted that slowing pay growth supports the view that inflationary pressures are easing, potentially paving the way for gradual rate cuts in 2026.

However, many economists caution that stagnant pay growth could weigh on consumer spending and overall economic momentum, particularly if new tax measures are introduced in Reeves’ November 26 budget.

Business Confidence Remains Fragile

A separate survey by the Confederation of British Industry (CBI) released on Wednesday found that UK firms expect business activity to decline over the next three months, extending a downturn that began in late 2024. Employers cited budget uncertainty and weaker consumer demand as major headwinds.

Conclusion

While UK inflation continues to ease, employers remain cautious about committing to higher wage increases. The combination of fiscal tightening, rising employment costs, and uncertain economic growth is expected to keep pay awards anchored at around 3% well into 2026.

The coming year will likely challenge businesses to balance employee retention and competitiveness with the need for fiscal discipline—a balancing act that could define the trajectory of Britain’s post-inflation recovery.