Data reveals 8.8% UK wage growth, but gains at risk as SMEs warn of price hikes
Employment Hero, the global leader in HR, hiring and payroll software, has today released its February Jobs Report, tracking real-time employment and wage growth in the UK, based on data from over 120,000 employee records within small businesses. The latest data reveals a significant uptick in wage growth, placing increased pressure on businesses ahead of Employment Rights Bill reforms coming into force.
Unsustainable wage growth
This week, the chancellor said that households are projected to see an increase in disposable income over the current parliamentary term. However, new labour market data from Employment Hero suggests small businesses are playing a key role in driving that trend. Wage growth in UK SMEs reached 8.8% year-on-year in February – up sharply from 5.6% in January – as employers continue to compete for talent.
Wage growth in the North of England was particularly strong, rising 12.5% year-on-year in February. In the current economic climate, however, questions remain over whether this pace of growth is sustainable for small businesses facing rising costs and increasing regulatory pressures.
A slow and steady hiring recovery
The data shows that the steady uptick in year-on-year employment growth recorded in January has been sustained, rising from 4.4% to 4.9% in February. With the OBR forecasting unemployment to peak later this year, this continued growth is positive news and highlights the resilience of small businesses.
However, while momentum appears to be gradually returning, employment growth remains well below pre-April 2025 levels.
All eyes on the Employment Rights Act
Alongside rising costs, small businesses across the nation are navigating a host of external pressures, including regulatory change. Separate research conducted by Employment Hero finds that the Employment Rights Bill (ERB) is front of mind for many firms, ahead of reforms set to come into force in April.
A clear majority (84%) of the small business leaders surveyed anticipate having to make changes to mitigate the risks associated with ERB reforms. To prepare for the reforms, almost a third of businesses (30%) plan to increase their prices, which is likely to dilute the impact of rising wages on real disposable income.
Kevin Fitzgerald, UK managing director at Employment Hero said: “Our February data shows that UK SMEs are driving wage growth, with salaries up 8.8% year-on-year as businesses compete for talent amid ongoing cost-of-living pressures. While the chancellor highlighted households feeling better off in the Spring Statement, the OBR forecasts unemployment to peak later this year, showing that the labour market is not out of the woods yet.
“The Employment Rights Act reforms coming into effect next month add further pressure, with almost a third of SMEs planning price increases, potentially offsetting gains in real disposable income. These figures highlight the resilience of small businesses, but policymakers need to ensure that rising wages translate into meaningful benefits for households, rather than being eroded by higher costs.”