The North and East of England are continuing to outpace the capital on wage growth ahead of April’s Employment Rights Act measures, data has revealed.
While London’s comparatively meagre growth came in at 4%, small businesses in the North and East of England are hiking pay at triple the rate with 12.5% and 11.9% annual increases. But the February 2026 Employment Hero Jobs Report reveals something more significant than raw numbers: namely, regional differences in strategy ahead of April’s legislative cliff.
Northern vs. Eastern England: Retention vs. Expansion Strategies
The North’s 12.5% year-on-year wage growth by and large tells a story of prioritising retention. Despite commanding the highest wage increases in the country, Northern employment expansion stands at just 0.5% year-on-year (YoY). Rather than hiring, Northern businesses are paying a scarcity premium of sorts to lock in existing staff ahead of new employment legislation taking effect in April.
The East, by contrast, is gambling on expansion – racing to build teams before the Employment Rights Act makes hiring more complex and potentially more expensive. The region combines aggressive hiring (17.4% YoY employment growth in February) with the second-highest wage increases (11.9% annually and 4.0% month-on-month (MoM)). For businesses anticipating strong demand or facing severe skills shortages, getting staff through the door now makes strategic sense.
The challenge is cost. By simultaneously adding headcount and raising pay, Eastern SMEs are creating intense cost pressures that many may not be able to sustain long term. That said, as anchor employers in their local economies, many calculate that the cost of losing talent to competitors – or failing to hire at all – still outweighs the pain of wage inflation, at least in the short term.
The East’s MoM employment dipped slightly in February (-0.2%). While modest, this could signal the first signs of businesses reaching their hiring capacity or pulling back as cost pressures mount. Whether that represents prudent constraint or the beginning of a broader slowdown remains to be seen.
Can SMEs Sustain 12.5% Wage Growth Long-Term?
What is clear, however, is that both strategies carry risk. As the ONS Business Insights and Conditions Survey reported in January, 36% of businesses with over 10 employees now name labour costs as their top challenge. For Northern and Eastern SMEs pursuing aggressive wage or hiring strategies, that challenge is intensifying rapidly.
The North’s 12.5% annual wage growth – combined with the East’s dual pressure of hiring and pay increases – means many SMEs risk paying above their long-term wage models to secure immediate talent needs, effectively betting on either absorbing costs or passing them on to customers once the April changes take effect. For businesses with thin margins or limited pricing power, that bet could prove difficult to sustain.
UK Regional Wage Growth Timeline: November 2025 to February 2026
Neither the North’s nor the East’s wage surge appeared overnight. Both represent sustained upward pressure building since late 2025 as businesses began preparing for April 2026’s regulatory changes.
In November, the North posted 3.6% annual wage growth – modest but already outpacing London and the South as employers began securing critical staff ahead of the Employment Rights Act. The East, meanwhile, recorded strong 9.7% annual wage growth in the same period, establishing a pattern that would continue through to February.
By December, that upward pressure on wages grew. Monthly wage growth in the North surged 8.2% MoM and 8.8% YoY – the strongest in the country at that time. And the East recorded 0.3% MoM and 8.9% YoY, with wages running opposite to employment trends across most regions.
Then came January’s correction: as employers braced for the April deadline, Northern wages dropped 4.9% MoM, part of a broader national trend that saw UK SME wages turn negative (-1%) for the first time in 12 months. The February rebound to 12.5% annual growth in the North and 11.9% in the East suggests that January dip was tactical rather than structural – with businesses likely hitting pause before committing to another round of increases. Now, it appears they’re locked in.
Why London Wage Growth Has Fallen to 4%
London’s 4.0% annual wage growth would be respectable in isolation, but it represents a dramatic reversal for the UK’s traditional wage growth engine. The capital posted relatively strong MoM growth in February (3.5%), but weak annual figures reveal wages were flat or falling through much of 2025. Employment Hero Jobs Report figures for December, for example, show London wages declined 0.5% MoM, while in November, annual growth sat at just 1.2%.
For a capital city that typically commands premium wages and attracts national talent, 4.0% annual wage growth isn’t just modest – it signals a fundamental rebalancing. London’s 2.9% MoM employment growth in February and 2.2% YoY annual expansion suggests the capital is adding jobs, but at a far more measured pace than in previous years and without the wage premiums that traditionally accompanied London roles. The capital remains a significant employer, but it’s no longer the wage-setting powerhouse it used to be.
Scotland and the South, meanwhile, show healthy employment growth (4.5% YoY each, with 2.7% MoM momentum) without the extreme wage pressures seen in the North and East. Both regions appear to be expanding more sustainably, balancing modest hiring with controlled wage increases rather than betting heavily on either strategy. This suggests a middle path exists – though whether it’s more viable long-term or simply reflects less competitive local labour markets remains an open question.
What Happens to UK Wages After April’s Employment Rights Act Measures?
February’s data exposes a fragmented UK labour market where regional SMEs are pursuing divergent strategies with limited room for error:
- Northern businesses have committed to retaining staff through elevated pay
- Eastern businesses are expanding aggressively while simultaneously hiking wages
- London’s traditional wage-setting dominance continues to fade as other regions compete more effectively for talent
Many SMEs in the North and East are operating at or beyond their sustainable wage models, banking on the assumption that locking in talent now will prove worth the cost later. The coming months will reveal whether these high-stakes bets pay off – or whether businesses that expanded more cautiously will prove to have made the wiser choice.
FAQ: Employment Rights Act & Regional Wage Growth
Q: Why are Northern England wages growing faster than London’s?
A: Northern businesses are prioritising staff retention (12.5% annual wage increases) ahead of April’s Employment Rights Act, while London’s growth has slowed to just 4.0% annually as the capital’s traditional wage premium erodes.
Q: Which UK region has the highest wage growth in 2026?
A: Northern England leads with 12.5% annual wage growth, followed by Eastern England at 11.9%, both significantly outpacing London’s 4.0%.
Q: What happens to UK wages after the Employment Rights Act takes effect in April 2026?
A: SMEs in the North and East are operating at unsustainable wage levels, betting on absorbing costs or passing them to customers. The coming months will reveal if these strategies succeed or force market corrections.
Q: Is the East of England’s hiring surge sustainable?
A: The answer is uncertain for the time being. The region combines 17.4% YoY employment growth with 11.9% wage increases, creating intense cost pressures. A slight February employment dip (-0.2% MoM) may signal businesses reaching capacity limits.
Q: What is the biggest challenge facing UK SMEs in 2026?
A: Labour costs. Thirty-six percent of UK businesses with over 10 employees now cite wages as their top challenge, with Northern and Eastern SMEs facing the most acute pressures.
