Private sector wage growth at lowest level in nearly six years

Private sector wage growth has hit its lowest level in nearly six years, according to new data released by the Office for National Statistics (ONS). Despite concerns about rising inflation driven by higher earnings, the wider UK jobs market remained relatively stable in the summer. The private sector wages increased by 2.9 percent in the three months to July, falling short of the 6.3 percent growth in the public sector and 6.1 percent in the quarter to June.

This marks the lowest point for private sector wage growth since October 2020, when the rate was at 2.4 percent. Overall, average earnings, excluding bonuses, rose by 3.5 percent, matching the expectations of economists. Including bonuses, earnings grew by 3.9 percent. Liz McKeown, director of economic statistics at the ONS, noted the disparity between public and private sector pay growth, attributing the public sector figures to the timing of NHS pay awards this year.

The Bank of England closely monitors private sector wage growth, as it serves as an indicator of potential second-round effects. However, there is uncertainty among city analysts about whether the Bank will raise interest rates during their meeting on Thursday, though some suggest a more cautious view may prevail. Martin Beck, chief economist at WPI Strategy, emphasized the significance of the weaker private sector wage growth, stating it is now aligning with the Bank's target for inflation.

However, Liam McLaughlin from the National Institute of Economic and Social Research warned that a potential rebound in oil prices could complicate the situation, as higher energy and food costs might influence wage negotiations later in the year. Unemployment remained steady at 4.9 percent, with a slight increase in public sector employment.

The ONS reported a decrease in the number of payroll employees by 101,000 since July 2025, but public sector employment has grown by around 33,000. Despite the steady unemployment rate, employers have cited higher taxes and regulation as reasons for reduced hiring. Vacancies have also decreased by 8,000, indicating a jobs market at its weakest level in around five years.