British workers saw their pay packets grow at a slower pace in June, as the economic fallout from the conflict in the Middle East continues to push up energy bills and the cost of living across the country. Official data released on Tuesday showed that average earnings including bonuses rose by 4.1% in the three months to June, down from 4.3% in the previous quarter, though slightly above analyst forecasts of 4%.
Excluding bonuses, annual wage growth stood at 3.5% for the same period. The figures, published by the Office for National Statistics, underline the squeeze on households as they grapple with higher prices for fuel, food and other essentials.
Public-private pay gap widens
The gap between public and private sector pay growth remains stark. Public sector regular earnings grew by 6.1% year-on-year, partly reflecting the timing of pay awards, while private sector growth was just 2.8%. This divergence is likely to be a key concern for the Bank of England's rate-setting committee, which meets next month to decide on interest rates.
The Bank is considering raising rates as early as September to prevent persistently high inflation from becoming entrenched in the economy. With inflation expected to approach 3% when official figures are released on Wednesday, largely due to soaring energy costs, policymakers face a delicate balancing act between curbing price pressures and avoiding a further slowdown in wage growth.
Beyond energy, British households may soon face higher water bills. Much of the country is currently in drought, and the water regulator Ofwat is considering introducing "surge pricing" during dry spells. Under such a scheme, consumers would pay more for water during summer months or once they exceed a certain usage threshold, with bills likely to fall in winter.
Labour market shows signs of cooling
The latest labour market data also reveal a softening in hiring. Vacancies fell to 707,000 in the May-to-July period, a decrease of 6,000 (0.8%) compared with the previous quarter. Declines were recorded in nine of the 18 industry sectors, with the largest drops in human health and social work (down 5,000) and education (down 4,000).
The number of payrolled employees also fell, by 86,000 (0.3%) on an annual basis and by 37,000 (0.1%) quarter-on-quarter. This suggests that employers are becoming more cautious about taking on new staff amid rising costs and regulatory changes.
Danni Hewson, head of financial analysis at AJ Bell, said in a note that "small businesses, the lifeblood of the UK economy, are buckling under the pressure of increased costs and changes to employment law have made the prospect of taking a punt on a new face increasingly difficult." She added that "big jumps in public sector pay and the timing of those increases continue to influence the headline wage growth numbers," and that the Bank of England's rate setters will be mindful of this when they meet next month.
The economic picture presents a significant challenge for the new government led by Andy Burnham, which must reduce financial pressure on both businesses and households ahead of what is likely to be a difficult autumn budget. With inflation still elevated and wage growth lagging, the cost-of-living crisis remains a central issue for British politics.
Across Europe, similar pressures are being felt as the conflict in the Middle East disrupts energy markets. The situation has renewed attention on households taking energy matters into their own hands, while governments explore longer-term solutions such as geothermal energy to reduce dependence on imported fuels.
