Public sector makes wage growth higher than expected
Wage growth was higher than expected as pay offers in the public sector far outweighed growth in the private sector, new data has revealed.
Official statistics have shown that wage growth, including bonuses, reached 4.1 per cent between April and June compared to a market forecast of four per cent.
This was still lower than the 4.3 per cent figure in the month.
Excluding bonuses, pay growth was 3.5 per cent, which was also slightly higher than City economists and investors expected.
Hotter pay growth than expected was, however, largely driven by the public sector. Pay growth was 6.1 per cent for the public sector and just 2.8 per cent for the private sector.
“The labour market picture is little changed overall, with some softening still evident,” said Liz McKeown, director of economic statistics at the ONS.
“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.”
A top City economist said the difference between private and public sector wage growth was “stark”.
Martin Beck, chief economist at WPI Strategy, said: “Beneath the headline figures, the divide between the public and private sectors remained stark, with the public sector continuing to provide much of the support to employment and pay growth.
“Slower private-sector wage growth is encouraging for the inflation outlook, but less so for households. The inflationary fallout from the Iran conflict is likely to squeeze real incomes during the second half of 2026, although the fall in oil prices since late July should ease some of that pressure.
“The worst of the labour-market deterioration may have passed, but consumers still face an uncomfortable period in which wage growth struggles to keep pace with prices.”
He also noted that jobs in the private sector had fallen much further than jobs in the public sector, which had increased since the start of the year.
Small businesses hit by costs
The Office for National Statistics also estimated that the unemployment rate remained 4.9 per cent, higher than economists pencilled in.
This came as the number of payrolled employees increased by 3,000 between April and May, though still remained about 85,000 lower than figures for a year ago.
Meanwhile, the number of vacancies decreased by 6,000 to 707,000 taking it to the lowest level in more than five years. This was the smallest decline this year, however.
“The latest decrease was driven mainly by smaller businesses, which cite labour and operating costs as reasons for not hiring new staff or replacing leavers,” McKeown added.
Pat McFadden, however, said new jobs figures were “encouraging”.
The work and pensions secretary pointed to a rise in the employment rate, which measures the number of people in the jobs market, and no change on the inactivity rate, which was 20.9 per cent.
“It’s encouraging to see signs of progress in the latest figures, with employment on the up and a continued fall in unemployment rate,” McFadden said.
“We will continue to reform welfare and employment support so that more people can live independently and restore opportunity across the country.”
Tories to cut red tape for young people to get jobs
New figures may spell doom for the UK economy as the Bank of England and City economists have suggested the jobs market could take a turn for the worse later this year.
The Bank has projected the unemployment rate to hit 5.2 per cent while worse forecasts put the unemployment rate peak nearer to 5.5 per cent. Slower wage growth and rising unemployment could ease fears that the Bank is set to raise interest rates in response to the energy price shock from continued trade disruption across the Middle East.
The Conservative opposition are intensifying challenges against the Labour government over job losses.
Under a new pledge that is a “benefit of Brexit”, the party has said it would repeal EU regulations on young people’s ability to work.
Requirements for 16 and 17-year-olds to take a rest period of 48 consecutive hours in any week will be removed while young people will also be able to work later nights on the weekend during term time and any hour outside of term time.
Party officials said they were drawing on findings from the Alan Milburn review on Neets, young people not in employment, education or training,
The paper by Milburn found that work for young people helped “build on confidence, learn the habits of work and show employers what they could do” though opportunities to do so had since ended.