UK labor market loses further momentum in Q2

19/08/2026 03:28 AST

Britain's labor market cooled further in the second quarter, marked by slowing earnings growth in the private sector and the smallest number of vacancies in more than five years, official data showed on Tuesday. Private sector regular earnings - watched by the BoE as a gauge of domestic inflation pressure - rose by 2.8 percent in annual terms during the three months to June, marking the weakest growth since the three months to October 2020.

While that matched the BoE's own forecast published last month, sterling fell slightly on the data, which also showed the unemployment rate holding at 4.9 percent, against expectations in a Reuters poll of economists for a drop to 4.8 percent. The data is likely to make most BoE policymakers happy to keep interest rates on hold for now, though the central bank has said it may take until the end of the year before it can tell whether higher energy prices from the Iran war are translating into bigger pay settlements.

"The slightly weaker jobs picture than expected suggests the labor market is still easing, but only very gradually now," said Rob Wood, chief UK economist at Pantheon Macroeconomics. The number of open job vacancies edged down to 707,000 in the three months to July, down from 711,000 in the three months to June, the Office for National Statistics said. It was the smallest total since the three months to April 2021. Excluding the pandemic, vacancies are at their lowest since late 2014.

While the earnings and unemployment data mostly predate Andy Burnham's rise to prime minister last month, economists said they point to a labor market that is losing momentum - an unpromising sign for the months ahead. "Looking ahead, ongoing uncertainty over the US-Iran conflict and the possibility of another round of tax hikes in the October budget suggest the risks to employment remain skewed to the downside," said Andrew Hunter, senior economist at Moody's Analytics.

Employment rose by 83,000 in the second quarter, a much smaller increase than the median forecast of 129,000 in the Reuters poll and the weakest reading for five months. Separate data from the tax office showed the number of payrolled employees fell by 12,850 in July, marking a sixth straight month of decline.

Even slightly stronger pay growth across the wider economy looked anomalous. Overall earnings growth, excluding bonuses, was 3.5 percent in the second quarter. While up slightly from 3.4 percent in the three months to June, the reading was skewed higher by the timing of National Health Service pay awards that lifted public sector pay growth to 6.1 percent, its highest this year.

After adjusting for inflation, earnings excluding bonuses rose by 0.7 percent in annual terms in the three months to June, the highest reading this year but reflecting a fall in inflation that economists regard as temporary. The BoE is closely watching whether the energy price jump caused by the Iran war is turning into longer-term inflation pressures in the economy. Financial markets on Tuesday showed one 0.25 percentage-point interest rate hike priced by the end of 2026.

Reuters