Most British Firms Eye 3%–3.5% Pay Increases In 2026, Survey Shows

British businesses are most likely to be planning to raise pay this year by between 3% and 3.49%, according to a survey on Monday, slightly more than some Bank of England policymakers are comfortable with as they seek to return inflation to target.

Incomes Data Research said 39% of employers were eyeing pay rises of 3%-3.49%, followed by 22% planning a raise of 3.5%-3.99% and 16% planning increases of 2.5%-2.99%.

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The survey was based on responses in November and December from 121 businesses employing a total of 2.8 million workers.

“Inflation is currently higher than it was a year ago and this has applied upward pressure on pay to some extent,” IDR researcher Zoe Woolacott said.

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British inflation peaked at an 18-month high of 3.8% in the third quarter of last year – partly due to one-off increases in regulated prices and employer levies in April 2025 – and has since fallen to 3.4%.

Although BoE Governor Andrew Bailey has said he expects inflation to drop back to close to its 2% target in April or May this year, not all the central banks’ rate-setters are sure it will stay there.

Megan Greene, who opposed December’s quarter-point rate cut, said last month that pay growth much above 3% was likely to put upward pressure on inflation, given weak productivity growth, and that she would be closely following employers’ wage plans.

Economists polled by Reuters expect the BoE to keep interest rates unchanged at 3.75% on Thursday after their upcoming meeting.

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Private-sector pay growth, excluding bonuses, slowed to an annual rate of 3.6% in the three months to the end of November from 3.9% in October, according to official data.

IDR said 44% of employers planned to offer the same pay rises this year as last year, while 28% expected to offer more and the same proportion intended to offer less.

(Reporting by David Milliken, editing by Andy Bruce)

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