UK pay body expects minimum wage to rise 4.1% in 2026

By David Milliken

LONDON (Reuters) -Britain's main minimum wage rate will probably need to rise 4.1% next year to 12.71 pounds ($16.88) an hour to keep up with the government's goal for it to match two-thirds of median earnings, the body which effectively sets the rate said on Tuesday.

Britain's minimum wage has risen steeply in recent years - increasing by 6.7% in April to 12.21 pounds an hour - and last year it was the second-highest in Europe after France in relative terms, OECD data showed.

Rising wage costs across the whole economy are seen by the Bank of England as one reason why British inflation has been higher than elsewhere in Europe, though it expects pressure to ease as the job market is slowing.

Britain's minimum wage is set by the government each year based on a recommendation from the Low Pay Commission, a government-appointed body that includes representatives from employers, trade unions and academia.

Around 6.5% of British workers receive the minimum wage and a significant number are paid only slightly more.

A trade body for Britain's hospitality industry said rising employment costs had already led to reduced hours for staff.

"Any significant wage hike may cost jobs. We urge the Low Pay Commission to recognise these cost pressures and recommend a more gradual and sustainable increase this year," UKHospitality chair Kate Nicholls said.

Earlier on Tuesday Britain's government gave guidelines to the commission on the factors it should consider, which were little changed from 2024. They include keeping minimum pay no lower than two thirds of the median while taking into account economic competitiveness and employment.

In May, the commission predicted that the minimum wage for employees aged 21 and over, which the government calls the National Living Wage, would rise by 3.6% next year.

FASTER WAGE GROWTH

The commission said Tuesday's higher estimate reflected faster growth in average wages in the past three months and higher expected wage growth over the coming year. The final figure could range between 12.55 pounds and 12.86 pounds an hour, it added.

"Our recommendations are not purely formulaic and we are required to take economic conditions into account, so these figures should be taken as indicative only," it said.

The central estimate was based on a prediction that annual wage growth for the average worker would slow from 5.1% in May 2025 to 3.9% at the end of this year and 3% by the end of 2026.

The government has also asked the commission to continue to work towards eliminating the lower minimum wage rate of 10 pounds an hour paid to workers aged 18-20 without hurting employment in that age group.

($1 = 0.7532 pounds)

(Writing by David MillikenEditing by Giles Elgood and Gareth Jones)