2026 Pay Awards: Where are organisations landing?
The data for 2026 pay awards shows remarkable consistency across the market:
- 41 per cent of organisations are planning a 3 per cent pay award
- 34 per cent are planning 3.5 per cent or more
- Only 0.4 per cent are planning a pay freeze
While there was a brief uptick in predicted 2.5 per cent awards during autumn 2025, many of those organisations have since revised their plans back up to 3 per cent. Overall, most organisations are planning pay awards in a 3 – 3.5 per cent range.
Importantly, despite earlier concerns, the proportion of organisations implementing pay freezes has not increased and is not expected to rise in 2026.
Inflation outlook and real pay
Inflation remains an important backdrop to pay discussions, even if it is no longer the primary driver. Current forecasts suggest:
- The Office for Budget Responsibility (OBR) forecasts inflation at 2.5 per cent in 2026
- The Institute for Fiscal Studies (IFS) expects inflation to return to the 2 per cent target in the first half of 2026. The National Institute of Economic and Social Research (NIESR) forecasts inflation reaching target by Q3 2026
- The IMF forecasts UK inflation at 2.5 per cent, still among the highest in the G7
This suggests that while inflationary pressure is easing, real pay growth will remain modest. Employees may continue to feel cost-of-living pressures, particularly given frozen tax thresholds.
How are pay awards being distributed?
In terms of pay award delivery, there is a consistent dominant approach:
- Across-the-board increases are the most common method for 2026
- A combination of across-the-board and targeted increases comes in very closely as the second most common approach
- Fully individually determined increases remain relatively uncommon compared with pre-Covid practice
Across-the-board increases support perceptions of fairness and transparency, helping reinforce trust and understanding among employees. This approach also reduces complexity and provides consistency, making pay award delivery easier to communicate and administer across the organisation.
This is closely followed by organisations using a blended approach to manage pay compression and skills shortages, while ensuring everyone receives an increase, retaining some flexibility to target specific roles or groups.
Out-of-cycle increases remain steady, with organisations typically budgeting for around one per cent additional pay bill growth beyond the main award.
Sector differences and labour turnover
While median pay awards are broadly similar across sectors, some differences remain. The electricity sector continues to lead on average pay awards, while sectors such as housing associations, residential care, IT, construction, housebuilding, media and charities typically cluster around a three per cent median.
Labour turnover data provides important context for these decisions. As of January 2026:
- Median voluntary turnover stands at 11.5 per cent
- Overall turnover is around 16 per cent
Turnover has eased from its 2023 high, with over one third of organisations reporting a decrease in labour turnover over the past year. However, HR leaders consistently highlight that the “devil is in the detail,” with hotspots by role, location and career stage.
Early-career churn, competition from adjacent sectors (such as retail and hospitality), and geographic pressures remain key challenges, even as headline turnover stabilises.
Vacancies, redundancies and affordability pressures
Broader labour market data reinforces why affordability is front and centre of concerns for HR professionals. ONS data shows:
- An 11 per cent fall in vacancies between September to November 2024 and the same period in 2025
- A 29 per cent rise in redundancies over the same timeframe
Recent reports from KPMG/REC in January 2026 cited redundancies as the main driver of rising candidate supply. The Bank of England’s Monetary Policy Committee discussed evidence from business surveys that increases in National Insurance contributions and the NLW weighed heavily on employment growth in recent quarters, with many employers reducing headcount more than they otherwise would have done.
Looking ahead
Taken together, the data suggests that 2026 will be a year of cautious consistency for pay. Most organisations are settling around a three per cent award, constrained by affordability, but supported by a calmer labour market and easing inflation. The challenge for HR and reward leaders is not just how much to pay, but how to use limited pay budgets effectively – managing compression, targeting skills shortages and increasingly positioning pay as part of a broader total reward proposition. As our round table discussion highlighted, pay may be stabilising, but the complexity of pay decision-making has not gone away.
