• As real wage growth falters, a representative survey of 1,001 UK senior business decision-makers shows just over one in five (22%) are planning to above inflation pay rises in 2026, falling to 16% for firms with less than 50 staff
• July’s energy price rise risks deepening financial pressure for households, with ONS data indicating one in three people (34%) are already struggling with energy bills and one in four (25%) are unable to afford an unexpected £850 cost
• The majority of firms (82%) are planning to offer financial wellbeing support this year with the most popular offers including extending benefits packages (27%), facilitating choice and flexibility on working patterns and benefits (26%) and offering overtime (24%)
• However, one in seven businesses (15%) plan no new financial wellbeing support in 2026, this rises to 29% among firms with less than 50 staff
• Researchers warn that low-paid and insecure workers are most at risk of a new cost of living squeeze and call on the Government to act to shield them from renewed price increases.

Workers could face a renewed cost of living squeeze this summer as rising energy bills, stalling wage growth and a weakening labour market leave households exposed to higher prices, new analysis warns.

A new survey of 1,001 senior business leaders, conducted by Survation for the Work Foundation at Lancaster University, found that just over one in five employers (22%) are planning to provide pay rises above inflation this year. This falls to one in six (16%) for businesses with less than 50 employees.

Official statistics indicate wage increases have recently slowed to their weakest rate in five years, with average regular pay rising by just 0.1% in real terms as inflation remains high. Researchers warn that elevated energy and fuel costs, driven by ongoing instability in the Middle East, could push workers into a renewed period of shrinking real wages.

Separate ONS data shows nine in ten adults (89%) still see the cost of living as the biggest issue facing the UK. Before Ofgem’s energy price cap rise on 1 July, one in three people (34%) said they were struggling to afford energy bills, while one in four (25%) could not cover an unexpected £850 cost.

Against this backdrop, the new employer survey suggests most businesses (82%) are providing some support to staff to help deal with rising costs. Extending benefits options is the most common form of support being offered. However, one in seven employers (15%) say they are not providing any cost of living support, and this rises to 29% for small businesses.

Ben Harrison, Director of the Work Foundation at Lancaster University, said:“A sluggish economy and ongoing global instability risks further intensifying cost of living pressures that workers across the country are already facing.

"Repeated periods of stagnant wage growth and sustained increases in the cost of essentials have left many households with little financial resilience to cope with any further economic shocks.

“Most employers are actively looking for ways to support their staff, but many are facing the pressures of rising costs too. This underlines the importance of Andy Burnham’s recent promise to prioritise short-term cost of living relief, and for the Government to focus on delivering good growth in every postcode in the years ahead."

A weakening labour market has changed how employers support workers

Pressures in the UK labour market have shifted significantly in recent years. Recruitment difficulties and skills shortages have receded, with two thirds of employers (69%) stating they currently have no challenges in recruiting or retaining. However, one in eight (12%) employers say they have had to make redundancies due to rising costs and 13% have had to cut the hours of existing staff.

Job vacancies have fallen to their lowest level since 2021, weakening workers’ bargaining power and reducing pressure on employers to raise wages to compete for staff with just 22% of employers indicating they plan on offering inflation-beating pay rises in 2026.

However, the Work Foundation says businesses are investing in other forms of cost of living support, as many workers continue to struggle with high household costs. One in four employers are planning to extend benefits packages (27%), followed by offering flexibility on working patterns and benefits (26%) and offering overtime (24%).

Other forms of support have also become more popular, including a one-off cost of living support payment (21%), signposting to external support services such as citizens advice (18%) and support with childcare costs (17%).

Professor Hilary Ingham, Professor in Economics at Lancaster University and a Work Foundation Research Fellow, said: “Most employers genuinely want to support their staff, but currently smaller businesses are operating with very limited financial headroom. They have been faced with rising employment costs, persistent inflation in many of their business inputs and a weaker trading environment. Taken together these factors mean that many simply cannot absorb higher wage bills in the way larger firms sometimes can.

“This highlights why Government cannot rely on employers alone to protect living standards. Policies that improve productivity, reduce the cost pressures facing businesses and create the conditions for sustainable growth are essential if firms are to deliver better pay and more secure, higher-quality jobs over the longer term.”

The Work Foundation is calling for employers and Government to take urgent action to protect workers from renewed cost pressures. It recommends:

1. Employers prioritise above-inflation pay rises for the lowest-paid workers wherever possible.
2. Where pay rises are not possible, employers provide targeted cost-of-living support, via enhanced workplace benefits, flexible working, and support with essential costs such as transport and childcare.
3. Government and local leaders ensure growth plans are properly resourced to create secure, well-paid jobs, provide cost-of-living relief and subsidised transport for local workforces, and provide practical support for small businesses to improve pay and job quality.