Britons are continuing to feel the squeeze on their finances, even as official figures show wage growth staying strong in the face of a slowing jobs market.
Rising Unemployment, Fewer Vacancies
The latest snapshot of the labour market, published by the Office for National Statistics (ONS), points to a gradual cooling. Vacancies fell by 119,000 in the year to August, while the unemployment rate edged up to 4.7% in the three months to July — the highest level in four years.
There are now 2.3 unemployed people for every vacancy, compared with 2.2 in the previous quarter.
Employment is still growing, but largely because more people who were previously classed as economically inactive have begun looking for work. The inactivity rate fell to 21.1%, down 0.8 percentage points on a year earlier, though it remains above pre-pandemic levels.
Helen Gray, chief economist at the Learning and Work Institute, said: “While economic inactivity is falling, a sizeable number of those returning to the labour market appear to be seeking work, rather than entering employment.”
Wage Growth Stubbornly Strong
For the Bank of England, which meets on Thursday to set interest rates, wage pressures remain a key concern. Annual pay growth excluding bonuses stood at 4.8% in the three months to July — still well above the level the Bank considers consistent with hitting its 2% inflation target.
Economists warn that strong pay rises risk giving firms scope to keep raising prices, fuelling further rounds of inflation. Governor Andrew Bailey has repeatedly pointed to wage growth as one of the most important factors shaping the Bank’s decisions on interest rates, currently at 4%.
The new data makes a rate cut this week highly unlikely.
Workers Still Feeling the Pinch
Despite the headline numbers, many households are not seeing a marked improvement in living standards. Inflation, pushed higher again by rising food prices and energy bills, has eaten into gains.
The ONS said real wages were only 1% higher than a year ago, or just 0.5% when housing costs are factored in.
Ben Harrison, director of the Work Foundation thinktank, said: “The combination of stagnant living standards and sticky inflation means that people are still likely to feel pessimistic about their household finances one year into the new parliament.”
Political and Economic Backdrop
The data comes amid uncertainty over Chancellor Rachel Reeves’s upcoming budget and the impact of her £25bn rise in national insurance contributions. Businesses are also facing higher labour costs, global trade pressures linked to Donald Trump’s tariffs, and disruption from artificial intelligence.
While the government has set out its ambition for growth to be “felt in people’s pockets,” the figures suggest that reality on the ground remains more complicated.
