Private sector wage growth at lowest level in nearly six years
Private sector wage growth remains at lows not seen in nearly six years in a sign that Britain’s labour market is weakening further ahead of a crunch interest rate decision for the Bank of England on Thursday.
New data has shown that the wider UK jobs market cooled further over the summer, adding to a mixed picture on the state of the UK economy amid a surprise growth spurt in July and risks over price rises.
The Office for National Statistics (ONS) found that private sector wages increased by 2.9 per cent in the three months to July.
This compared to 6.3 per cent for the public sector in the three months to July and 6.1 per cent in the quarter to June.
Private sector wage growth is now at the lowest point since October 2020 when the rate was 2.4 per cent.
Overall, average earnings excluding bonuses increased by 3.5 per cent, which matched economists’ expectations Including bonuses, earnings rose by 3.9 per cent.
“There remains a notable difference between public and private sector pay growth, with public sector figures continuing to be affected by the timing of NHS pay awards this year,” said Liz McKeown, director of economic statistics at the ONS.
“The labour market remains broadly stable, with employment and unemployment largely unchanged in the latest period.”
Bank of England officials closely monitor private sector wage growth figures as they send a signal on second round effects, which is when spiralling pay packages can push up prices for consumers – and vice versa – due to greater levels of salary bargaining on the part of employees and higher costs faced by firms being passed on to customers.
The Bank’s Monetary Policy Committee will meet on Thursday to decide on whether to raise interest rates.
City analysts have said the Bank is unlikely to tighten monetary policy although some have suggested that economists could take a more cautious view on wage and price effects pushing up in the UK economy.
Martin Beck, chief economist at WPI Strategy, said weaker private sector wage growth had become “increasingly difficult to ignore”.
“It’s now around the pace the Bank thinks is consistent with the two per cent inflation target, while its own surveys suggest little prospect of this changing anytime soon,” Beck said.
However, the National Institute of Economic and Social Research’s associate economist Liam McLaughlin said a rebound in oil prices could “complicate the picture, particularly if higher energy and food costs feed into wage bargaining later this year, keeping the Bank of England alert to the risk that wage growth proves more persistent than anticipated”.
Last Friday, two-year gilt yields edged up above 4.75 per cent due to higher growth figures than expected, reflecting market predictions there could be as many as four interest rate hikes.
Wage growth and unemployment steady
The nine members of the MPC will also have to consider inflation data released on Wednesday morning as well as new unemployment data.
The Office for National Statistics (ONS) revealed that the unemployment rate remained at 4.9 per cent in the three-month period leading to July. The ONS said the number of payrolled employees continued to fall, with an estimate suggesting there were 101,000 fewer people in work in July this year than at the same time in 2025.
However, public sector employment has increased by around 33,000 since June 2025, according to the latest figures.
Since Labour took office in mid-2024, the unemployment rate has crept up from 4.4 per cent to 4.9 per cent as employers have blamed higher taxes and regulation for adding to costs on hiring new workers.
The number of vacancies meanwhile decreased by 8,000, and remain at lows not seen in around five years.
A weaker jobs market has put intense pressure on the government, with Andy Burnham promising to focus on helping Neets, who are young people out of employment, education and training.
Helen Whately, the shadow work and pensions Secretary, said: “Under Labour we’ve seen unemployment go up month after month. Now it’s stuck, leaving hundreds of thousands of people out of work and living off welfare. Their taxes and red tape have destroyed jobs and opportunities.”