Key Takeaways
- UK average total‑earnings growth fell to 4.1% in the three months to June, down from 4.4% in the prior quarter and slightly above the 4 % forecast.
- Regular (bonus‑excluded) wage growth edged up to 3.5 %, while private‑sector pay growth slowed to a weak 2.8 % – the lowest since October 2020.
- Public‑sector earnings rose to 6.1 %, boosted by the timing of NHS pay awards in early 2026.
- Job vacancies slipped to a five‑year low of 707,000 (May‑July), down 6,000 from the previous quarter and the lowest level since spring 2021.
- Unemployment held steady at 4.9 %, contrary to expectations of a dip to 4.8 %.
- Real‑terms earnings (after inflation) grew only 1.3 %, indicating a squeezing of household purchasing power as inflation approaches wage growth.
- The government has introduced “breathing‑space” cost‑of‑living measures and is reviewing youth‑employment policy, with a focus on expanding internships for young people with special educational needs.
- Analysts view the labour‑market softening as a potential signal for the Bank of England to pause further interest‑rate hikes.
Wage Growth Trends
The Office for National Statistics reported that average growth in total earnings—including bonuses—declined to 4.1 % for the three months ending June, a modest drop from 4.4 % recorded in the three months to May. City economists had anticipated a larger fall to around 4 %, suggesting the slowdown was less severe than expected. Liz McKeown, the ONS director of economic statistics, described the data as showing “some softening” in the jobs market while noting that the overall picture remained broadly unchanged, hinting at a possible stabilisation after a sharper deceleration earlier in the year.
Private versus Public Sector Pay
When bonuses are stripped out, regular wage growth rose slightly from 3.4 % to 3.5 %, beating forecasts of no change. However, the private sector experienced a more pronounced easing: earnings growth (excluding bonuses) slipped to 2.8 %, the weakest rate since October 2020. In contrast, public‑sector pay growth strengthened to 6.1 %, a figure inflated by the early‑2026 NHS pay awards that were paid out earlier than in the previous year. This divergence underscores how timing of specific sectoral settlements can distort headline averages.
Employment Levels and Payroll Changes
The number of workers on company payrolls fell by 13,000 in July, mirroring the decline seen in June after larger drops in preceding months. While the monthly reduction is modest, it contributes to a broader trend of restrained hiring. The steady fall in payrolls, coupled with slower wage growth, points to a labour market that is losing some of its earlier momentum, especially among private‑sector employers who are feeling the pinch of rising costs.
Vacancy Decline to a Five‑Year Low
Job vacancies fell to 707,000 for the May‑July period, a decrease of 6,000 from the previous quarter and the lowest level since spring 2021. This marks a five‑year trough and reflects growing caution among employers, particularly small businesses, who warn of rising employment costs. The decline in vacancies suggests that firms are becoming more selective in hiring, possibly awaiting clearer economic signals before expanding their workforces.
Unemployment Rate Stability
Despite the softening in vacancies and payrolls, the headline unemployment rate remained unchanged at 4.9 %. Economists had expected a slight dip to 4.8 %, indicating that the labour market is not shedding jobs at a pace sufficient to push unemployment lower. The stability of the unemployment figure, together with falling vacancies, points to a scenario where job seekers are encountering fewer openings rather than a surge in layoffs.
Inflation Impact on Real Earnings
When inflation is taken into account, annual growth in earnings after adjusting for price changes stood at just 1.3 % for the three months to June. With official data due to show that UK inflation edged close to 3 % in July—driven largely by higher energy bills—the gap between nominal wage growth and inflation is narrowing. Workers could therefore experience a squeeze on purchasing power if inflation continues to rise while wage growth remains subdued.
Government “Breathing‑Space” Measures
Prime Minister Andy Burnham’s administration responded to the cost‑of‑living pressure by launching a series of “breathing‑space” initiatives in its first week in office. These include targeted support for households facing rising bills and a pledge to combat unemployment, especially among young people who have borne the brunt of recent job‑loss trends. The government is also awaiting a review from former Labour cabinet minister Alan Milburn on youth employment, which is expected to recommend expanding internships for young people with special educational needs and introducing new requirements for primary schools to identify children at risk of leaving education at 16 without a job prospect.
Youth Employment Challenge
Milburn’s interim findings reveal that the number of 16‑ to 24‑year‑olds not in education, employment, or training (NEET) surpassed one million earlier this year—the first time in over a decade. He urged the government to “turbocharge” internship provision for NEET youths with special educational needs and to strengthen early‑identification mechanisms in schools. Pat McFadden, the Work and Pensions Secretary, welcomed recent signs of progress, citing employment gains and a continued fall in unemployment, and highlighted ongoing welfare reforms and a youth jobs grant designed to incentivise businesses to hire younger workers.
Policy Outlook and Monetary‑Policy Implications
Analysts interpret the mixed labour‑market signals—steady unemployment, falling vacancies, and slowing private‑sector wage growth—as a sign of a softening but not collapsing jobs market. Jake Finney, a senior economist at PwC UK, noted that while unemployment, employment, and inactivity remain broadly stable, the downturn in vacancies suggests the market is “soft, but it isn’t collapsing.” This environment may give the Bank of England leeway to maintain its current interest‑rate stance, as a weaker labour outlook could help prevent entrenched high inflation without necessitating further tightening.
Conclusion
The latest UK labour‑market data paint a nuanced picture: modest declines in total‑earnings growth and private‑sector pay, a notable rise in public‑sector wages due to timing of NHS awards, a five‑year low in vacancies, and steady unemployment. Real‑terms earnings growth remains weak, raising concerns about household purchasing power as inflation climbs. Government interventions aimed at easing the cost‑of‑living burden and boosting youth employment are underway, but their effectiveness will depend on how quickly they translate into hiring and wage improvements. For policymakers, the balancing act between supporting households and guarding against inflation will remain central in the months ahead.