Average salary increase budgets for UK employers in 2026 are expected to remain stable at 3.6%, matching 2025’s increases, according to research by Willis Towers Watson (WTW).
Its latest Salary budget planning report, which received 32,000 responses from employers across 168 countries, including 994 UK organisations, also found that three-quarters of respondents saw their salary budgets change in the last pay cycle, while 46% reported no change between their anticipated and actual pay budgets in 2025.
For the third (35%) that are projecting lower salary increase budgets than last year, the most common reason for this was concerns related to cost management (52%). An anticipated recession or weaker financial results (47%). Inflationary pressures (38%) and tight labour markets (50%) were the most commonly cited reasons for change among those that are projecting higher salary increase budgets.
Fewer organisations this year have found employee stability challenging, with 25% reporting difficulty attracting or retaining staff; a decrease of four percentage points since 2023.
Respondents have taken action to support their workforce, including placing a broader emphasis on diversity, equity and inclusion (44%), improving the employee experience (40%) and increasing training opportunities (39%).
Additionally, respondents have adjusted compensation programmes to address inflationary pressures by conducting compensation reviews for employees (43%), performing deep dive compensation reviews for specific groups (43%), and hiring people higher in relevant salary ranges (40%).
Meanwhile, 41% raised starting salary ranges, 34% targeted base salary increases for specific employee groups, and 33% enhanced their use of retention bonuses or spot awards.
Ruchi Arora, managing director, talent and rewards at WTW, said: “While top-line budgets are generally holding steady, the real shift is happening beneath the surface. Organisations are being more deliberate about how they allocate pay, where they focus investment and what outcomes they expect to drive. Employers are no longer simply reacting to economic signals; they’re reimagining how to best support broader business goals in the face of uncertainty.
“As employers navigate continued economic uncertainty, ongoing increases in labour costs, and the changing needs and expectations of employees, they are positioning themselves for what is to come and making investments in their workforces that go beyond pay raises. These include career development, wellbeing, flexibility and equity because these are critical for performance, retention and resilience in a shifting market.”
