“Today’s data reinforces the case for the Bank of England to keep interest rates on hold, with labour market conditions remaining soft and private sector wage growth continuing to ease. Private sector wage growth is now running below levels consistent with the Bank’s inflation target, providing further evidence that domestic wage pressures are contained.
“We expect the Bank of England to keep interest rates unchanged at next week’s meeting, with developments in energy markets likely to play a bigger role in shaping the interest rate outlook over the coming months.
“Headline wage growth remained unchanged at 3.4% in May, with little evidence that the recent rise in energy prices has fed through into pay settlements. Weak hiring activity is continuing to weigh on workers’ bargaining power, limiting upward pressure on wages. Workers are also set to see a renewed squeeze on living standards during the second half of the year as higher energy costs feed through to household bills, while nominal wage growth shows little sign of picking up.
“Unemployment was also unchanged in the three months to May. Nonetheless, elevated costs and ongoing geopolitical uncertainty continue to weigh on hiring intentions. However, if some of these headwinds begin to fade, there remains scope for hiring activity to recover later this year. In the near term, labour market conditions are likely to remain relatively soft as businesses continue to balance weak demand against rising cost pressures.
“Beyond recent geopolitical headwinds, the UK labour market is also facing a broader set of domestic challenges. Hiring costs have risen since 2024, while firms’ investment in AI adoption may also be weighing on wider labour demand. Policymakers should consider ways to reduce hiring costs for businesses, which appear to have particularly affected younger workers and contributed to the recent rise in youth unemployment.”
