Private sector pay rises have edged higher at the start of 2026, with the median pay award increasing to 3.4 percent in the three months to January.
The rise from 3.0 percent reflects a growing share of pay settlements worth 4 percent or more, suggesting many employers remain under pressure to address the lingering effects of higher living costs even as inflation eased during 2025.
One fifth of private sector pay awards reached at least 4 percent in the latest period. That compares with 17 percent in the previous three months.
Across the economy as a whole, the median pay award was slightly lower at 3.2 percent, indicating that private sector settlements remain marginally stronger than those seen across all sectors combined.
 |
Get our essential daily HR news and updates. |
Larger settlements becoming more common
Higher-value settlements became more common during the latest period. Pay awards worth 4 percent or more rose from 15 percent to 19 percent across the wider economy. At the same time, most deals continued to cluster within a relatively narrow range.
Around three fifths of settlements, 59 percent, fell between 3 percent and 3.99 percent in the latest sample, up slightly from 57 percent previously.
The figures suggest employers are balancing ongoing pressure from staff over pay with a broader economic environment where inflation has begun to moderate but uncertainty remains.
Zoe Woolacott, analyst at Incomes Data Research, which carried out the research examining pay settlements across employers, said cost of living pressures were still shaping pay negotiations.
“The uptick in the median is an indication that cost-of-living pressures persist, even though the rate of inflation started to come down during 2025,” she said. “The path of inflation, however, may once more become an important determinant of pay outcomes in 2026, particularly in light of the current geopolitical situation.”
Manufacturing settlements rise at start of year
There are also noticeable differences between sectors within the private economy. Manufacturing and production often record a large number of pay settlements early in the year, and this pattern was reflected in the latest figures.
The median pay award in manufacturing rose from 3.0 percent to 3.4 percent in the three months to January.
Most pay deals in the sector remained concentrated in the 3 percent to 3.99 percent range, with 61 percent of awards falling into this bracket. That represents a drop from 67 percent in the previous period, suggesting slightly more settlements moving above this level.
Around 15 percent of manufacturing and production pay awards were worth at least 4 percent.
The timing of negotiations in this sector often means early year settlements can influence wider expectations about pay across other industries during the months that follow.
Private services show stronger pay outcomes
Pay settlements in private services remained slightly stronger overall. The median pay award in the sector stood at 3.5 percent, maintaining a higher level than manufacturing and production.
This was largely driven by the proportion of higher-value deals. Around 29 percent of pay settlements in private services were worth 4 percent or more, up slightly from 28 percent in the previous period.
The difference between the two sectors reflects the varied economic conditions facing employers, experts say. Service businesses in some industries have been able to pass higher costs to customers more easily, while manufacturers have often faced tighter margins due to input costs and global supply chain pressures.
Lower awards in not-for-profit sector
Pay outcomes in the not-for-profit sector were significantly lower than in the private sector. The median pay award in this sector stood at 2.5 percent, considerably below the level recorded for private employers.
Although not-for-profit settlements represent a relatively small share of the overall dataset, they contributed to the slightly lower median pay award recorded across the wider economy.
The latest figures illustrate how pay negotiations are continuing to evolve following the period of high inflation that affected both employers and employees during the past few years.
While inflation slowed during 2025, many workers remain sensitive to real wage pressures following a prolonged period of rising living costs. Employers, meanwhile, are attempting to balance staff expectations with financial pressures and broader economic uncertainty.
Inflation trends, economic growth and geopolitical developments could all influence how pay settlements develop during the remainder of 2026.
The analysis is based on a sample of 54 pay awards that took effect between 1 November 2025 and 31 January 2026. The settlements cover nearly 200,000 employees and largely reflect private sector employers, as few public sector awards were included in the dataset.
