UK Wage Growth Slows to 4.8% Amid Cooling Labour Market

In the three months leading up to July 2025, the UK's wage growth showed signs of moderation, with average weekly earnings (excluding bonuses) increasing by 4.8% compared to the same period the previous year. This marks a slight deceleration from the 5.0% growth observed in the three months to June, as reported by the Office for National Statistics (ONS) on September 16, 2025.

Despite the slowdown, wage growth continues to outpace inflation, which stood at 3.8% in July. This trend is expected to lead to a 4.7% increase in the state pension under the government's triple lock policy, which guarantees pension increases based on the highest of inflation, wage growth, or 2.5%. If confirmed, this would result in a rise in the weekly pension from £230.25 to £241.05, providing significant financial relief to retirees.

The public sector experienced a higher rate of wage growth, with average regular earnings rising by 5.6%, compared to 4.7% in the private sector. This disparity reflects ongoing efforts to address public sector pay disparities and may influence future policy decisions regarding public sector compensation.

However, the broader labour market shows signs of cooling. The number of payrolled employees fell by 6,000 between June and July 2025, marking the seventh consecutive monthly decline. Additionally, job vacancies decreased by 10,000, continuing a 38-month downward trend. The unemployment rate remained steady at 4.7%, its highest level in four years, indicating a potential softening in hiring activity.

These developments present a complex scenario for the Bank of England. While the moderation in wage growth may alleviate some inflationary pressures, the persistent inflation rate and signs of a cooling labour market suggest that the central bank may opt to maintain interest rates at 4% in its upcoming monetary policy meeting. The balance between supporting economic growth and controlling inflation remains a critical challenge for policymakers.

In summary, while UK wage growth continues to outpace inflation, providing some relief to households, the cooling labour market and persistent inflation present ongoing challenges for the economy. The government's commitment to the triple lock policy ensures that retirees will benefit from increased pensions, but broader economic conditions will require careful monitoring to maintain stability.