UK workers are getting pay rises, but inflation is eating almost all of it
British workers received modest pay increases in late 2025, but surging prices have left most of those gains wiped out in real terms, according to the latest official data from the Office for National Statistics (ONS).
In the three months to January 2026, annual growth in average regular earnings (excluding bonuses) reached 3.8%, while total earnings (including bonuses) grew by 3.9%.
When adjusted for inflation using the CPIH measure (which includes owner-occupiers’ housing costs), real regular pay grew by just 0.4%, and real total pay by 0.5%. Using the standard CPI measure, the figures were only slightly better at 0.5% and 0.7% respectively.
Public vs private pay
The split between sectors tells a more nuanced story. Public sector regular earnings grew at a robust 5.9% annually, boosted by the timing of some pay awards that were front-loaded in 2025 compared to 2024. This created a temporary “base effect” that has now peaked and is expected to unwind in coming months.
Private sector workers, by comparison, saw far more modest gains of just 3.3%. That slower pace aligns with broader signs of a cooling labour market and employer caution heading into 2026.
Earlier in the year, many businesses signalled plans for pay settlements in the 3% to 3.5% range for 2026, reflecting subdued hiring demand and a desire to keep costs in check.
A job market losing momentum
The wage data comes alongside other signals of softening in the UK jobs market:
- The unemployment rate rose to 5.2% in the three months to January 2026, up from a year earlier.
- Employment rate for ages 16-64 stood at 75.1%, slightly higher than the previous quarter but with mixed signals across data sources.
- Payrolled employees fell by around 0.3-0.4% over the year.
- Vacancies remained broadly flat, with a small dip in early 2026 estimates.
These figures paint a picture of a labour market that is gradually loosening after years of tightness that had pushed wage growth higher.
For many households, the near-stagnation in real pay will feel like another blow to living standards. While nominal wages are still rising, the purchasing power boost is minimal – especially with food, energy, and housing costs remaining sticky in parts of the economy.
The Office for Budget Responsibility (OBR) has forecast nominal wage growth slowing further to around 3.5% in 2026, with real earnings growth expected to stay below 1% in the near term before stabilising at more modest levels.
Bank of England policymakers will be watching closely. Cooling private-sector wage pressures could ease concerns about second-round inflation effects, potentially opening the door for further interest rate cuts later in the year. However, persistent public-sector pay dynamics and any renewed inflation spikes could complicate that picture.
