Wages contracted in January for the first time in 12 months, Employment Hero data reveals

• Employment Hero's latest Jobs Report reveals that the wages in UK SMEs contracted 1% month-on-month in January, the first decline in 12 months.
• Year-on-year wage growth has risen from -2.6% in January 2025 to 5.6% in January 2026, marking the first above inflation increase since June 2025. 
• Year-on-year employment growth rose 4.4% in January 2026, the biggest increase since March 2025, showing green shoots of progress in the UK labour market's recovery.

LONDON, Feb. 26, 2026 /PRNewswire/ -- Employment Hero, the global leader in HR, hiring and payroll software, has released its January Jobs Report, tracking real time employment and wage growth in the UK, based on real-time data from over 115,000 employee records within small businesses. The latest data reveals that monthly wage growth fell for the first time since January 2025, placing increased pressure on workers. 

Stuttering wage growth

Wage growth fell by 1% month-on-month in January. Amid ongoing economic uncertainty, this suggests that small businesses are struggling to balance a growing number of competing financial demands, choosing to exercise caution. This is perhaps expected, given that wages, according to Employment Hero's data, have sustained relative buoyancy since May 2025. Wage growth in the North of England was hit hardest this month, down 4.9% month-on-month.

Despite this decline, the longer term picture shows that year-on-year wage growth is at 5.6%, up from a -2.6% year-on-year dip recorded this time last year. This marks the first above inflation increase in wages since June 2025.

A gradual recovery in hiring

The data shows a modest month-on-month rise in employment growth in January, up 0.6% on December 2025. While this points to the resilience of small businesses across the UK amid ongoing uncertainty, it follows a period of decline. 

Looking at the longer-term picture, year-on-year employment growth declined sharply after April 2025 and remained subdued throughout the summer. Since October, there has been some recovery, forming a clear upward trend. January 2026 recorded a 4.4% year-on-year increase, up from 2.5% the previous month. This suggests that growth has passed the lowest point of the U-shaped curve.

Despite this improvement, employment growth remains below pre-April 2025 levels, indicating that while momentum is returning, recovery is still ongoing.

Kevin Fitzgerald, UK Managing Director at Employment Hero said: "January's wage dip is an early warning sign. Small businesses are heading into 2026 facing higher wage bills and significant regulatory change in April and many are already tightening the purse strings. While year-on-year employment growth is improving, the recovery is fragile. If costs continue to rise faster than confidence, pay growth and hiring could be the first casualties. Policymakers need to be careful not to overload the very businesses driving the UK's employment recovery".

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