UK labour market slows, private pay and vacancies at multi-year lows
Macro
The Office for National Statistics reported that the UK labour market continued to slow in the second quarter of 2026, with the unemployment rate steady at 4.9%, against economists' expectations for a decline to 4.8%. Employment rose by only 83,000, well below the median analyst forecast of 129,000 and the smallest increase in five months. Vacancies fell to 707,000 in the three months to July from 711,000 in the previous three months, the lowest since April 2021 and, excluding the Covid period, the lowest since late 2014. Regular private-sector pay excluding bonuses grew 2.8% year on year, slowing to its weakest since October 2020. Whole-economy pay excluding bonuses rose 3.5% in the second quarter, up slightly from 3.4%, temporarily boosted by a pay rise for National Health Service staff that pushed public-sector pay growth up to 6.1%, the highest this year. Real pay adjusted for inflation and excluding bonuses rose 0.7% year on year. Although that is the highest this year, economists assess it as driven only by temporarily slower inflation. Markets see these figures as supporting the case for most members of the Bank of England's Monetary Policy Committee to keep interest rates unchanged for now. However, the Bank of England has said it may need to wait until the end of the year before it can clearly assess whether the surge in energy prices from the Iran war will lead to higher pay settlements.
