UK wage growth holds at 3.5% as labour market weakens

UK wage growth remained steady at 3.5% in the second quarter of 2026, with inflationary pressures unlikely to arise, according to newly released labour market statistics. The unemployment rate climbed to 4.9% in June, up from 4.8% in May, while the single-month unemployment rate saw a steeper increase from 4.6% to 5.4%. Employers saw a decline in PAYE employment, with 13,000 fewer jobs in July, following a similar drop in June that was initially reported at 4,000. The overall employment level fell by 0.3% compared to a year ago.

Job vacancies also decreased, falling from 711,000 in the three months to June to 707,000 in the same period in July. Average earnings, including bonuses, slowed to 4.1% in June from 4.4% in May, a revision up from the previous 4.3%. This modest increase in wages was driven entirely by the public sector, with pay rising from 5.5% to 6.1%. In contrast, the private sector experienced a slowdown, with regular pay declining from 2.9% to 2.8%.

Analysts from Capital Economics noted that the weak labour market does not bode well for second-round inflation effects and anticipate that the Bank of England will maintain the current interest rate of 3.75%.