The UK labour market is showing further signs of cooling as the Office for National Statistics (ONS) reported that private sector wage growth has fallen below 3% for the first time in six years. The latest figures, covering the three months to June, also revealed that the number of job vacancies dropped by 7,000 to 712,000, marking another consecutive decline in available positions across the economy.
The decline in private sector pay growth is a significant milestone, reflecting a broader easing of inflationary pressures in the jobs market. Economists have been closely watching wage trends as the Bank of England considers the timing and pace of potential interest rate cuts. Slower wage growth could reduce the risk of persistent inflation, giving policymakers more room to loosen monetary policy later this year.
The ONS data showed that the overall vacancy count has been on a downward trend since mid-2022, when it peaked at more than 1.3 million. The latest figure of 712,000 is the lowest since the summer of 2021, although it remains above pre-pandemic levels. Sectors such as hospitality, retail, and manufacturing have seen the most significant reductions in hiring demand, while healthcare and education continue to report relatively high vacancy numbers.
Private sector wage growth, which had been running above 6% in mid-2023, has now moderated to below 3%. This slowdown is partly attributed to a larger workforce, as more people have returned to the labour market, and to reduced competition among employers for staff. The public sector, by contrast, has seen wage growth remain more elevated, partly due to catch-up pay deals agreed with unions in areas such as health and education.
The labour market data comes amid a broader economic picture of subdued growth and easing inflation. The UK economy has struggled to gain momentum, with GDP growth remaining weak in the first half of the year. Consumer confidence has been fragile, and business investment has been hampered by uncertainty over interest rates and global demand. The cooling jobs market adds to the case for the Bank of England to begin cutting rates from their current 16-year high of 5.25%.
Chancellor of the Exchequer Jeremy Hunt responded to the figures by highlighting the government's efforts to bring down inflation and support employment. He noted that the fall in vacancies and wage growth were signs that the economy was rebalancing, but acknowledged that many households were still feeling the squeeze from higher living costs. Labour's shadow chancellor Rachel Reeves argued that the data showed the Conservatives had failed to deliver sustained economic growth and that working people were paying the price.
Business groups offered a mixed reaction. The Confederation of British Industry (CBI) said that while the easing of wage pressures was welcome for firms struggling with higher payroll costs, the persistent vacancy levels in key sectors such as healthcare and construction remained a concern. The British Chambers of Commerce urged the government to focus on skills training and immigration policy to address long-term labour shortages.
Looking ahead, analysts expect the labour market to continue softening as the effects of high interest rates feed through to hiring decisions. The Bank of England's next monetary policy meeting is scheduled for early August, and the ONS data will be a key input into its decision. Many economists now anticipate a first rate cut in the autumn, though the timing remains uncertain given the persistence of services inflation.
The ONS also reported that the number of payrolled employees rose slightly in June, by 16,000 to 30.4 million, suggesting that while hiring has slowed, widespread job losses have not yet materialised. The unemployment rate, measured by the Labour Force Survey, has remained relatively stable at around 4.4%, though the survey has faced reliability issues in recent months due to low response rates.
Overall, the latest labour market data paints a picture of a gradually cooling economy, with wage pressures easing and vacancy numbers declining. For workers, this may mean less bargaining power in pay negotiations, but for policymakers, it could provide the evidence needed to begin unwinding the tight monetary stance adopted over the past two years.
