Private sector wage growth slips below 3% as vacancies fall 7,000 – ONS

For HR and compensation professionals, the latest ONS labour market figures are a clear signal that the era of runaway pay growth is over. With private sector earnings growth now below 3% for the first time in four years, HR teams face the challenge of keeping top talent engaged when across-the-board salary raises are harder to justify. At the same time, a 7,000 drop in vacancies – concentrated among smaller firms – suggests the hiring frenzy is receding, potentially easing some recruitment pressures but raising new questions about workforce stability and skills gaps.

The UK labour market is cooling at a measured but unmistakable pace, as fresh data from the Office for National Statistics (ONS) shows private sector regular wage growth slipping to 2.9% in the three months to May — the first time it has fallen below 3% since the pandemic-scarred year of 2020. At the same time, job vacancies dropped by another 7,000 in the quarter to June, reaching 712,000, bringing the cumulative decline over the past two quarters to 26,000. This dual deceleration in pay and openings comes despite an overall unemployment rate that held steady at 4.9%, signalling a labour market that is losing momentum without yet buckling.

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Public sector pay, meanwhile, surged 5.5% year-on-year, buoyed by the timing of NHS pay awards, which lifted the all-economy regular wage growth to an unchanged 3.4%.

The private sector pay figure, downwardly revised from 3.0% in the prior period, highlights how employers — particularly small businesses — are responding to the triple squeeze of rising operational costs, higher employer National Insurance contributions, and the April increase in the National Living Wage. The ONS explicitly noted that small businesses drove the vacancy fall, shedding 8,000 openings, even as medium-sized firms added some positions back. Public sector pay, meanwhile, surged 5.5% year-on-year, buoyed by the timing of NHS pay awards, which lifted the all-economy regular wage growth to an unchanged 3.4%. Real wages (after CPI inflation) still managed a modest 0.4% rise, preserving consumer purchasing power but offering little boost to demand.

The payroll data added another layer of nuance: the number of employees on UK payrolls dipped by a better-than-feared 4,000 between May and June to 30.3 million. The ONS sought to reassure that a recent Labour Force Survey error — where interviewers were accidentally allocated to the wrong survey — had only a minimal impact on headline estimates. Nevertheless, the confluence of receding vacancies, static unemployment, and decelerating pay growth paints a picture of a labour market in transition, where employers are more cautious but not yet slashing headcount.

For HR leaders, this shift carries immediate operational consequences. The vacancy fall, while moderate, suggests that the acute post-pandemic hiring frenzy is fading. Recruitment pipelines are likely to be less pressured, but the drop is concentrated among smaller firms, which often serve as the engine of job creation. Larger organisations and the public sector continue to compete for talent, particularly in health and social care, where the 5.5% public sector pay rise could exacerbate wage expectations in adjacent private-sector roles such as care providers and outsourced services. The compression of private-sector pay growth below 3% — against a backdrop of CPI inflation around 3% — means many workers are seeing only marginal real gains, which could influence turnover and engagement strategies. HR teams may need to lean more on non-monetary benefits, upskilling, and internal mobility to retain staff when across-the-board pay hikes become harder to justify.