Average salary increase budgets for UK companies in 2026 are expected to remain stable at 3.6%, matching 2025’s actual increases. This is according to the latest Salary Budget Planning Report by WTW, a leading global advisory, broking and solutions company.
Three quarters of organisations saw their salary budgets change in the last pay cycle. Just under half (46%) of these organisations reported no change between their anticipated and actual pay budgets in 2025. For the third (35%) of these organisations that are projecting lower salary increase budgets than last year, the most common reasons cited are concerns related to cost management (52%), and an anticipated recession or weaker financial results (47%). Inflationary pressures (38%) and tight labour markets (50%) are the most commonly cited reasons for change among the relatively few organisations that are projecting higher salary increase budgets.
“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,” said Ruchi Arora, Managing Director, Talent and Rewards, WTW.
Despite stable pay increases, employees are staying put. Fewer organisations this year have found employee stability challenging compared to the past two years. A quarter (25%) report difficulty attracting or retaining employees, representing a decrease of 4 percentage points since 2023.
In response to market conditions in which turnover is relatively low, and burnout and disengagement remains a concern, organisations have taken a number of actions to support their workforce, including placing a broader emphasis on diversity, equity and inclusion (44%), improving the employee experience (40%) and increasing or targeting the use of training opportunities (39%).
Additionally, employers are adjusting compensation programmes to address the competitive labour market and inflationary pressures. These actions have included conducting compensation reviews for all employees (43%), performing deep dive compensation reviews for specific employee groups (43%), hiring people higher in relevant salary ranges (40%) and raising starting salary ranges (41%). A third of organisations (34%) have targeted base salary increases for specific employee groups and 33% have enhanced their use of retention bonuses or spot awards.
“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,” said Ruchi Arora, Managing Director, Talent and Rewards, WTW.
