Fast Comment UK

MACRO RESEARCH 18 Aug 2026 • 08:35 CET

Fast Comment UK UK payrolls drop again Some continued weakening in the labour market. Official pay rates seem compatible with inflation target. Too soon to make a judgement on labour market impact on second-round effects.

Some continued weakening in the labour market Latest labour market figures for the UK are out this morning. The signs coming from this release point to some continued weakening in the labour market. While the headline unemployment rate remained at 4.9% in June (compared to an expectation of a slight drop to 4.8%), the payroll count fell by 13,000 in both July and June, according to provisional and revised figures respectively. The most recent payroll print indicates an annual drop 94,000 but there are large variations by sector: for example, the administrative and support services sector saw an increase of 63,000 employees but the wholesale and retail sector saw a fall of 75,000 employees. Estimated vacancies in the economy were down by 6,000 on the quarter and the unemployed to vacancy ratio has now been stuck at 2.5 since September last year. If you exclude the pandemic period, this is the highest ratio since 2014.

Official pay rates seem compatible with inflation target The official ONS earnings data continues to point to pay rates settling at levels that are compatible with the Bank of England's medium term inflation target, although there was a slight overshoot in the prints. Total earnings registered at 4.1% (4% expected) and regular earnings at 3.5% (3.4% expected). The latest figures are the three months to June on an annualised basis. Public sector pay settlements remain considerably higher than private sector pay awards (6.1% versus 2.8%) but there are still base effects that are skewing the public sector pay prints.

Too soon to make a judgement on labour market impact on second-round effects The UK's relatively weak labour market, while a concern for broader economic prospects, is a key factor that could contain second-round effects from the energy price shock brought about by the US-Iran war. It is too soon, however, for the MPC to make a firm judgement on this. First, many pay surveys suggest that earnings could be running considerably hotter than the official ONS measure, and second-round effects from the energy price shock would be expected to materialise at the end of this year and early next year when pay reviews are typically done. Inflation figures are out tomorrow, with an expectation of a notable jump in headline rate of CPI.

Unemployment to vacancy ratio Monthly change in UK payrolls

Source: UK Office for National Statistics Source: HMRC

MACRO RESEARCH 18 Aug 2026 • 08:35 CET

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