Bad news for UK salaries

Private sector pay growth in the UK fell to 2.9% in the three months to July 2026, its joint lowest rate since October 2020, according to analysis of the latest Office for National Statistics figures by the Resolution Foundation.

The think tank said the figures point to a tightening squeeze on private sector workers, with average weekly earnings now £2 lower in real terms than they were last October.

The ONS published its September labour market overview on Tuesday (15 September), showing annual growth in regular pay across the whole economy at 3.5% for May to July, and growth in total pay including bonuses at 3.9%, down from 4.2% in the previous three-month period.

Public sector pay grew 6.3% over the same period, driven by the timing of NHS pay settlements, and the Resolution Foundation said this gap between the two sectors has bumped up the headline total earnings figure.

That headline figure feeds directly into the state pension triple lock, and the think tank calculated it hands pensioners a rise of around £9.41 a week to £250.71 from next spring. Working-age benefits will rise by the lower rate of September’s CPI inflation, which it said is currently forecast at 3%.

Adjusted for inflation using the CPIH measure, regular pay grew 0.6% in real terms and total pay grew 0.9%, according to the ONS.

“The big winners from today’s ONS data are pensioners, who are set for another large rise in the state pension next spring thanks to the triple lock,” said Julia Diniz, economist at the Resolution Foundation.

“The biggest losers are workers in the private sector who are already earning less than they were last autumn. With wage growth slumping to its lowest rate in nearly six years, the UK’s private sector pay squeeze will tighten over the coming months as inflation rises,” she added.

The number of payrolled employees fell by 101,000 or 0.3% between July 2025 and July 2026, and dropped a further 19,000 on the month, according to HMRC data in the same release.

The early estimate for August showed payrolled employee numbers down 145,000 or 0.5% on the year to 30.2 million, with the ONS warning these figures will likely change as more data arrives next month.

The unemployment rate held at 4.9% in May to July, up 0.2 percentage points on the year, while the number of vacancies fell 8,000 to 702,000 in June to August.

Outside the pandemic period, the ONS said the last time vacancies were this low was August to October 2014. Feedback from its Vacancy Survey continued to suggest smaller firms are holding off recruiting because of increases in labour costs.

“With unemployment settling at around five per cent and the number of job vacancies continuing to fall, conditions are also tough for those looking for work, especially young people,” said Diniz.

Wealth manager Quilter Cheviot said the jobs market remains stuck in a slump, though the pace of decline has eased.

“While the labour market continues to soften, there are signs that it may be moving closer to its floor rather than entering a sharper downturn,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

“Employers are still grappling with higher employment costs and an uncertain economic outlook, but the pace of deterioration appears less dramatic than it was earlier in the year,” he added.

Carter said attention ahead of this week’s Bank of England decision has shifted towards inflation risks following the recent rise in oil prices, and that the Bank is not expected to raise rates yet.

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