UK pay growth slowed to 4.1% in June, while job vacancies hit a five-year low, signaling a cooling labor market. The latest Office for National Statistics (ONS) data reveals that average total earnings growth, including bonuses, fell from 4.4% in the three months to May to 4.1% in the three months to June. This slowdown has prompted economists to suggest the Bank of England may hold off on raising interest rates this year.
UK Pay Growth Trends in 2026
Regular wage growth, excluding bonuses, strengthened slightly from 3.4% to 3.5%, but this was below City forecasts. The private sector saw a more pronounced easing, with pay growth excluding bonuses slowing to 2.8%—the weakest rate since October 2020. In contrast, public sector pay growth rose to 6.1%, reflecting the timing of NHS pay awards, which distorts the overall figure.
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Private vs. Public Sector Pay Growth
The divergence between private and public sectors is stark. While public sector workers benefited from delayed pay settlements, private sector employers are tightening budgets amid rising costs and economic uncertainty.
| Metric | Private Sector | Public Sector |
|---|---|---|
| Pay growth (ex-bonuses) | 2.8% | 6.1% |
| Trend | Easing | Elevated |
Job Vacancies Hit Five-Year Low
Vacancies fell to 707,000 in May to July, down 6,000 from the previous quarter and the lowest level since spring 2021. Small businesses, in particular, are warning of rising employment costs, which is dampening hiring intentions. This weakness in private sector hiring suggests the labor market is losing momentum.
Implications for Interest Rates
Economists at ING noted that ongoing weakness in private sector hiring and wage growth means the bar remains high for a rate hike in 2026, unless energy prices spike severely. The Bank of England will likely monitor these trends closely as it balances inflation control with economic growth.
Key Takeaways
- UK pay growth slowed to 4.1% in June, down from 4.4% in May.
- Job vacancies hit a five-year low at 707,000.
- Private sector pay growth eased to 2.8%, the weakest since 2020.
- Public sector pay growth rose to 6.1% due to NHS pay timing.
- Bank of England may delay interest rate hikes.
FAQ
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