Britain’s labour market gave the Bank of England its clearest read in weeks this morning, and it pointed in two directions at once. Regular pay, excluding bonuses, edged up to 3.5 per cent in the three months to June, from 3.4 per cent in the previous reading, while the unemployment rate rose to 4.9 per cent from 4.7 per cent and the payroll count fell. For a Monetary Policy Committee still arguing with itself over the direction of the next move, that is the awkward combination: sticky wages against a softening jobs picture.
The context is a central bank that is not looking for room to cut. At its meeting ending 29 July 2026 the MPC held Bank Rate at 3.75 per cent, but the vote was a divided 6-3, with three members pushing to raise the rate to 4 per cent to lean against an energy-price shock that has kept inflation above the 2 per cent target. The question this print answers is not when the Bank eases, but whether the majority that voted to hold can keep the three hawks at bay. Wage growth is the figure that carries the most weight in that argument, and today it firmed rather than fell.
Pay held firm
Regular earnings growth of 3.5 per cent is a long way down from the peak of nearly 8 per cent reached in 2023, but it stopped easing. The three-month annual rate had been running at 3.4 per cent in the readings to April and May; June nudged it back up by a tenth. Total pay, which includes bonuses, ran at 4.1 per cent. The headline masks a familiar split: regular pay grew 6.1 per cent in the public sector, still distorted by the timing of this year’s pay awards, and 2.8 per cent in the private sector, the number the committee watches most closely as a gauge of underlying inflation pressure.
For the three members who voted to hike, that is the uncomfortable part of the release. They have argued that pay growth near 3.5 per cent is too warm to be consistent with inflation settling back to 2 per cent, and a print that ticks up rather than down does nothing to weaken that case. It does not by itself flip the majority, but it makes the argument for holding harder to hold.
Jobs softened
The rest of the release cut the other way. The unemployment rate rose to 4.9 per cent in the three months to June, up from 4.7 per cent and up two tenths on the year, its highest in this cycle. On HMRC’s payrolled-employee measure, the number of people on company payrolls fell by 13,000 in July, a provisional figure that leaves employment broadly flat but no longer growing. Job vacancies fell again, down 6,000 to 707,000 in the three months to July, extending a decline that has run for well over two years and taken openings back towards their pre-pandemic level.
Taken together, the demand side of the labour market is loosening. Firms are hiring less, the pool of unemployed is growing, and the gap between vacancies and jobseekers that pushed pay up through 2022 and 2023 has closed. On the usual reading, that is exactly the sort of slack that should pull wage growth lower over the coming quarters, which is why the hold camp will point to it.
The signal the committee least wanted
The trouble for the MPC is that the two halves of the release do not line up. A softening jobs market that is not yet dragging pay down is the signal a divided committee least wants, because it gives neither side a clean win. The doves can point to rising unemployment and falling vacancies as evidence that the tightening already delivered is working and that pay will follow. The hawks can point to pay that firmed rather than fell as evidence that inflation persistence is not fading fast enough, and that the labour market’s cooling has not yet reached the one number that matters for their mandate.
That tension is unlikely to resolve before the committee next meets. The MPC does not sit again until September, and it will have a fresh inflation reading, published on 19 August, before it decides. Wage growth is the variable the committee has repeatedly singled out as the clearest gauge of whether above-target inflation is becoming embedded, and on today’s evidence it is holding at a level the three hawks regard as too high. Whether the softening jobs data is enough to keep them in the minority is the question that will define the next vote.
For now, the hold survives, but the case for it did not get any easier this morning. A labour market that is shedding jobs while still paying its workers 3.5 per cent more than a year ago is precisely the puzzle that produced a 6-3 split in July. Nothing in today’s numbers looks likely to narrow it.
Source: ONS Labour Market Overview, UK, August 2026 (release printed 18 August 2026), and Bank of England Monetary Policy Summary, meeting ending 29 July 2026 (Bank Rate held at 3.75 per cent on a 6-3 vote).
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