UK LABOUR MARKET LOSES MOMENTUM AS WAGE GROWTH COOLS

Developing story: Wage data, vacancies, Bank of England expectations and budget assumptions may change as more economic indicators are released.

Britain’s labour market lost further momentum in the second quarter, with private-sector pay growth slowing and vacancies falling to their lowest level outside the pandemic period since late 2014. Reuters reported that private-sector regular earnings rose 2.8 percent annually in the three months to June, the weakest growth since the three months to October 2020.

The data matter because the Bank of England is trying to judge whether the energy shock from the Iran conflict will become embedded in broader inflation. Slower private-sector wage growth suggests domestic inflation pressure is easing, but weaker hiring also points to a more fragile economy under Prime Minister Andy Burnham’s new government.

The unemployment rate held at 4.9 percent, against economists’ expectations in a Reuters poll for a decline to 4.8 percent. Employment rose by 83,000 in the second quarter, below the median forecast of 129,000 and the weakest reading for five months. Separate tax data showed payrolled employees fell in July for a sixth straight month.

Vacancies also weakened. The Office for National Statistics said open job vacancies fell to 707,000 in the three months to July, down from 711,000 in the three months to June. Excluding the pandemic, that is the smallest total since late 2014, Reuters reported.

The wage picture is mixed because public-sector pay distorted the broader figure. Overall earnings growth excluding bonuses rose to 3.5 percent, but Reuters reported that the increase was skewed by National Health Service pay awards that lifted public-sector pay growth to 6.1 percent. The private-sector measure remains the more important signal for the Bank of England.

Markets reacted cautiously. Sterling slipped slightly after the data, reflecting concern that economic momentum is softening. Financial markets still priced in one quarter-point rate increase by the end of 2026, according to Reuters, because higher energy prices remain an inflation risk.

The data predate much of Burnham’s premiership, but they set the economic backdrop for his first months in office. A weakening labour market complicates any plan for tax increases in the October budget and may make cost-of-living support harder to finance if growth slows.

What is confirmed is that private wage growth cooled, vacancies fell and unemployment held at 4.9 percent. What remains unresolved is whether weaker labour demand will offset energy-driven inflation or whether Britain faces the more difficult combination of slower hiring and higher household costs.

Fact-check date: August 18, 2026. Article type: News. Sources: Reuters; Office for National Statistics. Developing note: Wage data, vacancies, Bank of England expectations and budget assumptions may change as more economic indicators are released.