Britain’s labour market showed further signs of cooling during the second quarter, as private-sector wage growth slowed and job vacancies fell to their lowest level in more than five years.
Official data released on Tuesday pointed to weaker hiring conditions and softer earnings growth, reinforcing expectations that the Bank of England may keep interest rates unchanged for now.
Private-Sector Wage Growth Slows
Regular earnings in the private sector rose 2.8% year-on-year in the three months to June.
That was the weakest rate of growth since the three months ending in October 2020.
Private-sector wage growth is closely monitored by the Bank of England because it provides an important indication of domestic inflation pressures.
The latest figure was in line with the Bank of England’s forecast published last month.
Sterling weakened slightly following the data release.
UK Unemployment Rate Holds at 4.9%
The UK unemployment rate remained unchanged at 4.9%, while economists surveyed by Reuters had expected it to decline to 4.8%.
The slightly weaker-than-expected labour market figures could strengthen the case for the Bank of England to leave borrowing costs unchanged in the near term.
However, policymakers are also watching the effects of higher energy prices linked to the Iran conflict.
The central bank has indicated that it may take until the end of the year to determine whether higher energy costs are feeding into stronger wage demands and broader inflation pressures.
UK Job Vacancies Fall Again
The number of available jobs declined to 707,000 in the three months to July, according to the Office for National Statistics.
That was down from 711,000 during the three months to June.
The latest reading was the lowest since the three months ending in April 2021.
Excluding the exceptional conditions created by the pandemic, UK job vacancies are now at their weakest level since late 2014.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the latest figures suggest the labour market continues to cool, although the pace of weakening has become gradual.
Employment Growth Misses Expectations
UK employment increased by 83,000 during the second quarter.
That was considerably below the 129,000 increase expected by economists in a Reuters poll and represented the weakest employment growth in five months.
Separate tax data also showed further weakness.
The number of employees on company payrolls fell by 12,850 in July, marking the sixth consecutive monthly decline.
The figures add to evidence that momentum in the UK jobs market is fading.
Economic Uncertainty Creates Further Employment Risks
Economists warned that employment conditions could face additional pressure over the coming months.
Uncertainty surrounding the U.S.-Iran conflict remains a significant concern, while the possibility of further tax increases in the October budget could also weigh on hiring decisions.
Andrew Hunter, senior economist at Moody’s Analytics, said these factors leave employment risks tilted toward further weakness.
NHS Pay Increase Boosts Overall Wage Growth
Wage growth across the broader economy appeared slightly stronger than in the private sector.
Regular earnings excluding bonuses increased 3.5% year-on-year during the second quarter, compared with 3.4% during the previous three-month period.
However, the increase was heavily influenced by the timing of National Health Service pay awards.
Public-sector earnings growth accelerated to 6.1%, its highest level so far this year.
This means the headline wage figure may overstate the underlying strength of salary growth across the wider UK economy.
Real Wages Rise as Inflation Eases
After adjusting for inflation, regular earnings increased by 0.7% year-on-year in the three months to June.
That was the strongest real-wage increase recorded this year.
However, economists believe part of the improvement reflects a decline in inflation that may prove temporary.
Higher energy prices remain a key risk, particularly if they begin to influence wage negotiations and longer-term inflation expectations.
Bank of England Rate Outlook Remains in Focus
The Bank of England will continue monitoring wages, employment and energy prices before deciding its next move on interest rates.
Policymakers are particularly focused on whether the rise in energy costs linked to the Iran conflict develops into broader and more persistent inflation.
Financial markets currently expect approximately one 0.25 percentage-point Bank of England rate increase by the end of 2026.
For now, the combination of slower private-sector wage growth, falling vacancies and weaker employment growth suggests that the UK labour market is gradually losing momentum.
