UK Pay Settlements Hold Steady at 3.5% for Second Month as Bank of England Rate Decision Approaches
Pay settlements awarded by British employers held at 3.5 percent for the second consecutive month in the three months to April, according to an Incomes Data Research survey published on Monday — a reading that arrives one week before the Bank of England is expected to leave interest rates unchanged at 3.75 percent as it monitors inflation risks stemming from the Iran war. The median pay rise awarded by major employers was 3.5 percent in the February to April period, the same as in the three months to March, IDR said. CNN
The proportion of firms offering pay rises of 4 percent or more rose to 33 percent in April from 21 percent in March, reflecting bigger pay rises in engineering, energy and water companies. IDR attributed the uplift in higher-end settlements directly to the April minimum wage increase. IDR said April was a month with higher pay awards as the minimum wage rose by 4.1 percent to £12.71 — equivalent to $17.11 — an hour for those aged 21 and over. CNNCNN
The stability of the median figure despite that minimum wage effect suggests the uplift in higher-end awards is being offset by restraint elsewhere in the pay distribution, leaving the headline settlement rate unchanged. That pattern matters for the Bank of England’s assessment: a stable median with a rising tail of 4 percent-plus awards is a more ambiguous signal on wage inflation than a broad-based acceleration would be.
The Bank of England, which is expected to leave interest rates unchanged at 3.75 percent next week, is monitoring pay growth as it gauges inflation pressures in the economy, which investors view as very exposed to higher energy prices caused by the war in Iran. CNN
The IDR survey adds to a body of evidence the Monetary Policy Committee will weigh at its June meeting. The Bank has been navigating a difficult combination of slowing domestic wage growth and externally generated inflation pressure from the Strait of Hormuz closure, which has kept energy prices elevated across the UK economy since the US-Israeli strikes on Iran at the end of February. Wage settlements running at 3.5 percent — above the Bank’s 2 percent inflation target but below the energy-driven headline price increases currently feeding through — provide the MPC with justification for holding rates rather than tightening further.
IDR said pay awards might have risen further in April when the 4.1 percent increase in Britain’s minimum wage came into force, but the median held, suggesting that minimum wage spillovers into broader pay bargaining have been contained. Wikipedia
Zoe Woolacott, a senior researcher at IDR, has been a consistent voice on the dynamics driving the settlement data. “Higher-end awards worth 4 percent or more are more common in April than at the start of the year due to the influence of the uplift in the National Living Wage,” Woolacott said — a framing that positions the rise in high-end settlements as a calendar effect rather than a structural shift in pay norms. Wikipedia
Regional and Global Impact
Britain’s wage settlement data is one of the key inputs the Bank of England uses alongside official Office for National Statistics earnings figures to assess whether domestically generated inflation is accelerating or cooling. The IDR survey’s confirmation of a stable 3.5 percent median for two consecutive months offers some comfort to policymakers, but the energy price channel — directly linked to the Hormuz closure — remains the dominant source of uncertainty in the UK inflation outlook. UK consumers are paying higher petrol and energy prices as a direct consequence of the Gulf crisis, and any pass-through of those costs into broader price-setting would complicate the Bank’s ability to hold rates at their current level through the summer. The rise in high-end settlements in engineering, energy and water — sectors directly exposed to elevated commodity and input costs — is one early signal of that pressure beginning to register in pay bargaining.
Background
The Bank of England cut interest rates from 4.75 percent to 3.75 percent across a series of reductions through late 2025 and early 2026, responding to cooling domestic wage growth and below-target inflation before the Iran war began. The conflict’s outbreak in late February reversed that benign inflation backdrop, raising energy costs and forcing the MPC into a more cautious holding position. IDR publishes its pay settlement survey monthly, drawing on data from major British employers across the public and private sectors. The survey covers a rolling three-month window and is timed to give the Bank of England relevant data in the week before each MPC meeting. The proportion of firms offering pay rises of 4 percent or more rose above 20 percent in the three months to March from 16 percent in February, establishing the trend that April’s 33 percent reading extended significantly. Wikipedia
What Happens Next
The Bank of England’s Monetary Policy Committee meets next week to set the policy rate. Market pricing as of Monday reflects an expectation that the Bank will hold at 3.75 percent, with the Iran war’s inflationary effect outweighing the case for further easing. The Office for National Statistics will publish its official UK earnings figures before the MPC decision, providing a second read on wage dynamics alongside the IDR survey. IDR’s next monthly pay settlement survey, covering the three months to May, will be published approximately four weeks after Monday’s release. No government minister or Treasury official commented on Monday’s IDR data.
