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Investing.com -- U.K. wage growth is set to ease in the coming years as National Living Wage (NLW) increases slow, with Deutsche Bank projecting the weakest pace since 2018 outside the pandemic years.
The Low Pay Commission has already provided this indicative assessment for the 2026 minimum wage rate. However, there could be some upside risk due to potential wage growth stickiness relative to the Office for Budget Responsibility’s assumptions, including the Government’s commitment to removing discriminatory age bands for adults.
Data shows increasing wage compression between the lowest-paid workers and median earners. On hourly pay rates excluding overtime, the lowest-paid decile now earns just over two-thirds of what median workers make, aligning with the Government’s remit.
For full-time workers, this ratio sits at about 65%, while part-time workers show the most compression at over 85% of median pay.
Deutsche Bank notes that across all three metrics, there has been nearly a 5 percentage point compression between the bottom decile of pay and the median over the past five years.
As pay growth at the lower end of the income distribution rises faster than before, pay premiums have narrowed, particularly given weaker domestic demand. Deutsche Bank attributes this to firms’ weaker margins, reduced labor bargaining power, and limited ability to pass on cost increases.
The bank expects these factors to drag on overall pay settlements despite the current bump in the Consumer Price Index.
With NLW growth likely settling at 4-4.5% for 2026, Deutsche Bank continues to forecast private sector pay deals slowing to 3% in 2026.