UK Pay Growth Slows as Job Vacancies Hit a Five-Year Low 2026

UK pay growth has slowed to 4.1% in the three months to June, while job vacancies have fallen to a five-year low, according to the latest Office for National Statistics (ONS) data. This cooling in the labor market comes amid renewed cost of living pressures and the economic impact of the Iran war. The figures suggest a potential shift in the Bank of England's monetary policy stance, with some economists now expecting no rate hike this year.

UK Pay Growth Slows: Key ONS Figures

The ONS reported that 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. Regular wage growth, excluding bonuses, strengthened slightly from 3.4% to 3.5%, but this was below City forecasts. The number of workers on company payrolls also declined by 13,000 in July, matching the previous month's fall.

What This Means for Interest Rates and the Bank of England

The slowdown in UK pay growth could deter the Bank of England from raising interest rates this year, according to some economists. James Smith, a developed markets economist at ING, noted that "ongoing weakness in private sector hiring and wage growth suggests the bar is still relatively high for a rate hike in 2026, barring a severe and prolonged spike in energy prices." The central bank has been monitoring wage pressures as a key driver of inflation, and a softer labor market may give policymakers room to hold rates steady.

Private Sector vs Public Sector Pay Trends

Private sector pay growth, excluding bonuses, slowed to 2.8% — the weakest rate since October 2020. In contrast, public sector pay growth strengthened to 6.1%, reflecting the timing of NHS staff pay rises earlier in 2026 compared to 2025. This distortion makes the overall picture appear more stable than the underlying private sector weakness suggests.

Job Vacancies Hit Five-Year Low: Impact on Businesses

Vacancies fell to 707,000 in May to July, a drop of 6,000 from the previous three months and the lowest level since spring 2021. Small businesses have warned they are facing a rise in employment costs, which is curbing hiring. The ONS's Liz McKeown said the data showed "some softening" in the jobs market, though the overall picture remains broadly unchanged — a potential sign of stabilisation after a sharper slowdown earlier this year.

Key Takeaways

• UK pay growth slowed to 4.1% in the three months to June, down from 4.4%.
• Job vacancies hit a five-year low at 707,000, signaling weaker hiring demand.
• Private sector pay growth eased to 2.8%, the weakest since October 2020.
• Public sector pay rose 6.1% due to NHS pay award timing, distorting the overall figure.
• The Bank of England may hold off on rate hikes as wage pressures cool.

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