Wage growth in the UK slowed in June and vacancies hit a five-year low as workers came under pressure from a renewed cost of living squeeze amid the economic impact from the Iran war. Figures from the Office for National Statistics show average growth in total earnings, including bonuses, fell to 4.1% in the three months to June, down from 4.4% in the three months to May. The pay slowdown could deter the Bank of England from raising interest rates this year, some economists suggested.
Liz McKeown, the ONS director of economic statistics, said the data showed “some softening” in the jobs market despite a broadly unchanged picture overall, in a potential sign of stabilisation after a sharper slowdown earlier this year. However, private sector pay growth has continued to ease, while public sector pay growth remains elevated due to the timing of the latest NHS pay awards,” she added. Pay growth excluding bonuses strengthened slightly from 3.4% to 3.5%.
City economists had forecast the rate would remain unchanged. The number of workers on company payrolls fell by 13,000 in July, matching the decline in June after larger falls in previous months. However, earnings growth, excluding bonuses, in the private sector slowed to 2.8%, the weakest growth rate since October 2020.
Pay growth in the public sector strengthened to 6.1%, reflecting the payment of NHS staff pay rises earlier in 2026 compared to 2025, which distorts the figure. Vacancies fell to a five-year low as small businesses warned they were facing a rise in employment costs. There were 707,000 in May to July, a drop of 6,000 compared with the previous three months and the lowest level since spring 2021.
Modupe Adegbembo, an economist at the investment bank Jefferies, said there was little in the data to make the Bank of England more worried about labour-market-driven inflation pressure. Money market pricing shows City economists expect one increase in UK interest rates by the end of the year, which would lift the Bank rate from 3.75% to 4%. The headline rate of unemployment remained unchanged at 4.9%.
City economists had forecast a drop to 4.8%. The snapshot comes as households face a fresh hit to living standards as the fallout from the Middle East conflict rattles the world economy. Official figures due on Wednesday are expected to show that a rise in energy bills drove UK inflation close to 3% in July.
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