British employers are expecting smaller pay increases next year, adding to evidence that the labour market is cooling. The outlook points to weaker wage momentum as the Bank of England watches inflation pressures and households face a subdued demand environment.
Highlights
- Brightmine survey shows 42% of UK employers expect 2027 pay awards between 2% and 3%, another 42% foresee 3% to 4%, signaling a shift from recent norms.
- Median pay deal for March–May remained flat at 3.2%, based on 251 awards covering 3.2 million employees, according to Brightmine data.
- Cooling wage growth could alleviate Bank of England inflation concerns but raises risks for household demand amid weak consumer morale and political uncertainty.
Survey signals lower 2027 pay awards
As reported by Brightmine, about 42% of employers surveyed say they expect pay awards in 2027 to average between 2% and 3%, while the same proportion expect settlements of between 3% and 4%. The human resources data firm says this marks a step change from recent years, when pay deals of 3% to 4% are the norm.Brightmine also says its median pay deal for the three months to the end of May, based on actual awards, is 3.2%, unchanged from the three months to April. The survey is based on 251 pay awards struck between March 1 and May 31, covering settlements for around 3.2 million employees.
Sheila Attwood, senior content manager of data and HR insights at Brightmine, says employers may come under renewed pressure to go further than they are currently planning to support employee living standards, with inflation still above the Bank of England's 2% target and close to the current median pay award.
Implications for inflation and household demand
Lower pay expectations are likely to be welcomed by the Bank of England, which remains concerned about persistent inflation. At the same time, the findings underscore worries about the outlook for household demand if wage growth loses momentum while consumer finances remain under pressure.Consumer morale is running low ahead of a change in prime minister, with the Labour Party's Andy Burnham currently the only candidate to take over from Keir Starmer. That political backdrop adds to uncertainty for businesses and households as employers plan pay settlements for the year ahead.
Our earlier coverage of Andy Burnham’s transition into office examined the key policy trade-offs he faces as he moves from campaign pledges to a workable governing agenda. We highlighted unresolved questions over how Labour would square fiscal rules with costly commitments on public services, housing, welfare and industrial policy, leaving businesses and households with limited clarity on the economic direction ahead.
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