UK wage growth slowed in the three months to June as households faced rising living costs linked to higher energy prices and continuing tensions in the Middle East.
Average earnings including bonuses increased by 4.1 percent year on year in the three months to June 2026, down from 4.3 percent in the previous three-month period, according to figures from the Office for National Statistics. The result was slightly above analysts’ expectations of 4 percent.
Regular earnings growth, excluding bonuses, stood at 3.5 percent over the same period.
The figures show a significant difference between public and private sector pay. Average regular earnings in the public sector rose 6.1 percent, with the figure continuing to be affected by the timing of pay awards. Private sector regular pay growth was considerably lower at 2.8 percent.
The slowdown comes as households across the UK continue to face higher costs associated with the Middle East conflict. Energy prices have risen sharply, adding pressure to household budgets and raising concerns that inflation could remain elevated.
Official inflation figures due later in the week are expected to show consumer price growth approaching 3 percent, partly because of higher energy costs.
Water bills could also become an additional source of pressure. The water regulator Ofwat is considering allowing companies to introduce higher charges during periods of drought. Under proposals being considered, consumers could face increased bills during summer months or pay more once their usage passes a specified threshold.
The Bank of England is also monitoring the inflation outlook closely. The central bank could consider an interest rate increase as early as September if price pressures remain persistent.
The combination of slower wage growth, higher household costs and weaker labour-market indicators presents a difficult challenge for Prime Minister Andy Burnham’s new government as it prepares for what could be a challenging autumn budget.
The labour market has shown signs of cooling. UK vacancies fell to an estimated 707,000 between May and July, a decline of about 6,000, or 0.8 percent, compared with February to April.
Vacancies declined in nine of the 18 industry sectors monitored. Human health and social work recorded the largest fall, with 5,000 fewer vacancies, followed by education, where vacancies declined by 4,000.
The number of employees on company payrolls also fell by 86,000, or 0.3 percent, year on year in the three months to June. Compared with the previous quarter, payroll employment declined by 37,000, or 0.1 percent.
Danni Hewson, head of financial analysis at AJ Bell, said smaller businesses were under increasing pressure from higher costs and changes to employment law.
She also noted that large public-sector pay increases and the timing of those awards continued to affect headline wage figures.
The latest data will be closely watched by Bank of England policymakers as they assess whether inflation remains strong enough to require tighter monetary policy.
