Most UK employers expect to keep budgets for salary increases flat for 2026, with the average rise expected to remain at 3.6 percent, matching pay increases for 2025.
This is one of the key findings in WTW’s latest Salary Budget Planning Report, which surveyed 994 UK organisations between April and June 2025.
Just over a third (35 percent) of companies plan to reduce their pay budgets for 2026 despite economic headwinds. Researchers said that where cuts are happening, the key drivers are cost management concerns (52 percent) and expectations of weaker financial performance or a potential recession (47 percent). Conversely, just a small proportion of employers are boosting salary budgets, and they cite tight labour markets (50 percent) and inflationary pressures (38 percent) as reasons.
But the headline pay figures don’t tell the whole story, according to researchers. WTW’s managing director, talent and rewards Ruchi Arora, said organisations are being more intentional with how they allocate compensation.
“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.”
With employee turnover easing, just 25 percent of employers now report attraction and retention as a challenge. This is 4 percentage points lower than 2023, with many organisations focusing on long-term workforce strategies.
Among the most common measures taken to support employees are an increased focus on diversity, equity and inclusion (44 percent), efforts to improve the overall employee experience (40 percent), and expanded access to training and development opportunities (39 percent).
Employers are also refining how they manage pay within existing budgets. A significant number have carried out compensation reviews for all staff (43 percent) or specific employee groups (43 percent), while others have raised starting salaries (41 percent) or hired at higher points within salary bands (40 percent). One in three (34 percent) have issued targeted base pay increases, and a similar proportion (33 percent) have enhanced the use of retention bonuses or spot awards.
Looking ahead, Arora said the focus will be on broader investment in people, not just pay. “These include career development, wellbeing, flexibility and equity—because these are critical for performance, retention and resilience in a shifting market.”
