UK Employers Plan Moderate Pay Rises as Inflation Pressures Ease but Persist

British businesses are most likely to raise employee pay by between 3% and 3.49% this year, according to a new survey, highlighting ongoing concerns for the Bank of England as it works to return inflation to its 2% target. The findings suggest that while inflation pressures have eased compared to last year, wage growth remains slightly higher than some policymakers consider comfortable.

The survey, conducted by Incomes Data Research (IDR), found that 39% of employers are planning pay increases in the 3%–3.49% range. A further 22% expect to offer pay rises of 3.5%–3.99%, while 16% are looking at more modest increases of between 2.5% and 2.99%. The research is based on responses collected in November and December from 121 businesses employing around 2.8 million workers, making it a significant snapshot of UK wage trends.

IDR researcher Zoe Woolacott noted that inflation remains higher than a year ago, which has contributed to upward pressure on wages. UK inflation reached an 18-month high of 3.8% in the third quarter of last year, driven partly by one-off rises in regulated prices and employer levies introduced in April 2025. Since then, inflation has fallen to 3.4%, offering some relief but not yet convincing all policymakers that price stability is secured.

Bank of England Governor Andrew Bailey has said he expects inflation to move closer to the 2% target by April or May. However, concerns remain among some rate-setters. Megan Greene, who voted against December’s quarter-point interest rate cut, has warned that pay growth significantly above 3% could fuel further inflation, especially given weak productivity growth in the UK.

Economists surveyed by Reuters expect the Bank of England to keep interest rates unchanged at 3.75% at its upcoming meeting. Meanwhile, official data shows private-sector pay growth excluding bonuses slowed to 3.6% in the three months to November, down from 3.9% in October. IDR also reported that 44% of employers plan to offer the same pay rises as last year, while 28% expect to offer more and another 28% anticipate offering less, reflecting continued uncertainty in the UK economic outlook.