Pay awards in 2027: steadier waters, but no easier decisions

2027 is looking very familiar...for now

We have already received 2027 pay predictions from 111 organisations. So far, the picture is remarkably consistent. The most common predicted pay award is, once again, 3%. More than half expect next year's award to be exactly the same as this year's. Around 28% are budgeting for 3.5% or above, while roughly one in five are planning for less than 3%.

At the moment, no organisations are forecasting a pay freeze. Now, everyone acknowledged that these are still forecasts. Plenty of organisations won't finalise budgets until much later in the year and economic conditions can change quickly. But compared with where we were even 18 months ago, there's a noticeably greater sense of stability.

People aren't expecting big swings.

Inflation still has the power to change the conversation

No one has stopped watching inflation. Forecasts remain mixed, with some economists expecting inflation to drift back towards target. Others think it could stay above 2% until 2028, with the possibility of another uptick during early 2027.

What is interesting is how employers say they will respond. More than half of those we surveyed said they wouldn't change their planned pay award even if inflation eased further. Around a quarter said they might reduce it by 0.5%, while only a relatively small number (16%) would cut plans by as much as 1%.

That feels like quite a significant shift. Pay isn't simply tracking inflation anymore. Organisations are taking a broader view, weighing affordability, internal equity, retention risks and longer-term reward strategy together rather than reacting to one economic indicator.

It's not just about how much you pay

One of the biggest talking points during the discussion wasn't actually about percentages. It was communication. Several employers talked about spending much more time explaining how pay decisions are reached, rather than simply announcing the outcome. That might mean sharing more about market benchmarking, explaining pay frameworks and being clearer about how performance links to reward. Or helping employees understand why two people doing seemingly similar jobs may receive different increases.

There is a growing recognition that transparency matters. Employees don't necessarily expect to receive the biggest increase in the market every year, but they increasingly expect an explanation. They want to understand the thinking behind decisions, not just the number itself. That feels like a lasting shift. The other trend discussed repeatedly was moving away from blanket pay awards. Many organisations are expecting to combine a general increase for everyone with more targeted investment for specific groups, whether that's high performers, hard-to-recruit roles, or areas where pay has drifted behind the market. It is a much more nuanced approach than simply giving everyone the same percentage. And, to be honest, most employers around the table felt that that is where reward strategy is heading.

Labour market pressures haven't disappeared

The labour market has definitely cooled. Vacancies are lower and redundancies have edged up. Out-of-cycle pay increases have largely returned to normal levels after the disruption of the Great Resignation. But recruitment challenges have disappeared. Several organisations said specialist skills remain difficult to attract, while early careers recruitment continues to present challenges in some sectors. Rather than responding with broad pay increases, employers are becoming far more selective.

The thinking is simple: spend reward where it's most likely to make a difference.

What happens next?

If the past few years have shown us anything, it's that pay planning rarely stands still. Inflation changes, markets move, budgets evolve and assumptions get challenged. Which is why so many organisations are moving beyond focusing on a single headline percentage. Instead, they are using market data to benchmark against peers, pressure-test assumptions and build confidence before finalising decisions.

Following our 2027 Pay Award Expectations Discussion Forum, we're making our Pay Market Reports available to organisations wanting a deeper view of the market. The reports bring together historic pay trends, 2026 awards, the latest 2027 predictions, sector-specific analysis, inflation data and labour market insights.