UK wage growth slowed further and job vacancies dropped to their lowest level in five years, according to Office for National Statistics figures released on 18 August 2026, as the economic fallout from the conflict involving Iran added to pressure on household budgets. The unemployment rate held steady at 4.9% in the three months to the end of June, confounding City forecasts of a fall to 4.8%.
Average total earnings growth, including bonuses, eased to 4.1% in the three months to June, down from 4.4% in the three months to May. Economists had expected a sharper slowdown to 4%. Regular pay growth, which strips out bonuses, edged up slightly from 3.4% to 3.5%, defying forecasts that it would stay unchanged. The number of employees on company payrolls dropped by 13,000 in July, matching June's decline after steeper falls earlier in the year.
Why is pay growth losing momentum?
Private sector earnings growth, excluding bonuses, slowed to 2.8% — the weakest pace since October 2020 — while public sector pay growth strengthened to 6.1%, a figure distorted by the earlier timing of NHS pay awards this year compared with 2025. Liz McKeown, the ONS director of economic statistics, said the data pointed to "some softening" in the jobs market even though the broader picture remained largely unchanged, suggesting a degree of stabilisation after a steeper slowdown earlier in the year.
Regular wage growth has remained broadly stable in recent months. However, private sector pay growth has continued to ease, while public sector pay growth remains elevated due to the timing of the latest NHS pay awards.
How does this fit with recent trends?
The latest reading follows a period in which pay growth had already fallen sharply: in March 2026, wage growth hit its lowest rate in over five years at 3.8%, with unemployment then at 5.2%. That followed a rise in joblessness to 5.2% in the final quarter of 2025, the highest since early 2021. The ONS's July 2026 labour market release had already shown vacancies slipping to 712,000 in the April-to-June period, with public sector regular pay growth at 5.5% and private sector regular pay growth at 2.9%, according to the Office for National Statistics.
Sterling dipped following the release of the latest figures, as the data reinforced signs of a cooling labour market, according to a report from , which also confirmed that private sector regular earnings rose 2.8% year on year in the three months to June and that vacancies fell by 6,000 over the same period to 707,000.
What is happening to hiring and vacancies?
Vacancies fell to 707,000 in the May-to-July period, a decline of 6,000 from the previous three months and the lowest level since spring 2021, as smaller firms warned of rising employment costs. Job postings fell 11% between the start of 2026 and 17 July, and stood 32% below pre-pandemic levels, according to data from the recruitment site Indeed, reported by . Separately, a survey by the Chartered Institute of Personnel and Development found that median expected pay rises remained at 3%, while 31% of employers reported hard-to-fill vacancies, according to . The full picture of a weakening hiring market was set out separately in coverage of small firms pulling back on hiring even as temporary vacancies showed early signs of recovery, and in a wider account of how oil prices surged above $90 a barrel after the collapse of the US-Iran ceasefire while UK wage growth cooled.
What does this mean for households and inflation?
Annual earnings growth after accounting for inflation stood at 1.3% in the three months to June, but workers face the prospect of a fresh squeeze as inflation rises towards the slowing pace of wage growth. Official figures due on Wednesday were expected to show that higher energy bills pushed UK inflation close to 3% in July.
How is the government responding?
The figures underline the challenge facing Andy Burnham's government as it tries to ease the pressure on household finances ahead of a difficult autumn budget. The new prime minister used his first week in office to unveil a series of "breathing space" measures aimed at easing the cost of living, and has pledged to tackle unemployment given that young people have borne the brunt of recent increases in joblessness.
Ministers are awaiting a review into youth employment from Alan Milburn, the former Labour cabinet minister, after the number of 16- to 24-year-olds not in education, employment or training rose earlier this year for the first time in more than a decade. Milburn has indicated he will call for greater support for young people with special educational needs and for new obligations on English primary schools ahead of a final report due this autumn.
Pat McFadden, the work and pensions secretary, welcomed the figures.
It's encouraging to see signs of progress in the latest figures, with employment on the up and a continued fall in unemployment rate.
He pointed to measures already in place to overhaul the benefits system and support jobseekers, including a youth jobs grant designed to encourage businesses to take on young workers.
We will continue to reform welfare and employment support so that more people can live independently and restore opportunity across the country.
What are economists saying about interest rates?
Analysts said the figures pointed to a cooling jobs market that could strengthen the case for the Bank of England to refrain from raising interest rates. Threadneedle Street has indicated that a weaker labour market could help prevent stubbornly high inflation from becoming entrenched in the economy.
Jake Finney, a senior economist at PwC UK, said the report was broadly reassuring despite the softer tone.
On the face of it, the latest labour market report looks relatively benign. Unemployment, employment and inactivity remain broadly stable, while vacancies edged down but are essentially levelling off. The jobs market remains soft, but it isn't collapsing.
What happens next?
Households face a further test on 1 October 2026, when Ofgem's next energy price cap adjustment takes effect; the government has said it expects to remove 5% VAT from domestic electricity bills from that date, according to a House of Commons Library briefing. The next full ONS labour market update, covering employment, unemployment, inactivity, earnings and vacancies, was published on 18 August 2026 and is available via the Office for National Statistics release page.
Key Facts
- Unemployment held at 4.9% in the three months to June, against forecasts of 4.8%.
- Total pay growth, including bonuses, slowed to 4.1%; regular pay growth rose slightly to 3.5%.
- Vacancies fell to 707,000 in May-to-July, a five-year low, down 6,000 on the previous quarter.
- Private sector regular pay growth slowed to 2.8%, the weakest since October 2020, while public sector pay growth rose to 6.1%.
- Ofgem's next energy price cap change and a planned VAT cut on electricity bills are due on 1 October 2026.
