UK Wage Growth Beats Forecasts: Average Earnings Rise 3.5% in June

UK average earnings excluding bonuses rose by 3.5% year-on-year in the three months to June, according to official data released today, surpassing the 3.4% forecast and marking a continued easing from the elevated levels seen earlier in the year.

What the latest earnings data shows

The Office for National Statistics (ONS) reported that average weekly earnings, excluding bonuses, increased by 3.5% in the April-to-June period compared with the same months a year earlier. This figure, which adjusts for inflation in real terms, reflects a labour market that is gradually cooling but still exhibiting underlying resilience.

Including bonuses, total pay growth was slightly higher at 3.7%, though bonuses remain volatile and are often concentrated in specific sectors. The data, published as part of the ONS’s monthly labour market overview, also showed that the unemployment rate held steady at 4.4%, while the number of vacancies continued to decline, signalling softer demand for workers.

Why this matters for households and the economy

Wage growth is a critical indicator for the Bank of England as it assesses inflationary pressures. With inflation currently running at around 2.8% (as of June 2025), the latest earnings increase means that, in real terms, workers’ pay is now rising faster than prices, providing some relief to households that have faced a prolonged cost-of-living squeeze.

However, the Bank of England has signalled caution, noting that above-target wage growth could complicate its efforts to bring inflation down to the 2% target. Economists suggest that the gradual slowdown in pay growth, from a peak of 6.5% in mid-2023, may give policymakers room to consider further interest rate cuts later this year, though no decisions have been announced.

Market and policy implications

Financial markets have been closely watching these figures for clues about the future path of interest rates. A stronger-than-expected wage figure could reduce the likelihood of an immediate rate cut, while a weaker number would have increased pressure on the Bank to act. The pound and UK government bond yields showed little immediate reaction, indicating that the data was broadly in line with market expectations.

For businesses, the continued rise in labour costs, even at a slower pace, underscores the challenge of managing payroll expenses amid tight margins. Sectors such as hospitality and retail, which rely heavily on part-time and hourly workers, remain particularly sensitive to wage pressures.

Conclusion

Today’s earnings data reveals a UK labour market that is gradually rebalancing, with wage growth moderating but still exceeding forecasts. While the real-terms increase in pay is welcome news for workers, the Bank of England’s inflation mandate means that sustained wage pressures will remain a key factor in its policy decisions. The coming months will show whether this trend continues, shaping the outlook for both households and the broader economy.

FAQs

Q1: What is the difference between earnings including and excluding bonuses?
Earnings excluding bonuses strips out one-off payments such as annual bonuses, providing a more stable measure of regular pay. Including bonuses can be volatile, especially in sectors like finance where bonuses are significant.

Q2: How does wage growth affect interest rates?
Higher wage growth can feed into inflation as businesses may pass on higher labour costs to consumers. The Bank of England monitors wage data closely; if pay rises too quickly, it may keep interest rates higher to cool the economy.

Q3: Why is the unemployment rate important alongside earnings?
The unemployment rate indicates the health of the labour market. Low unemployment can put upward pressure on wages as employers compete for staff, while rising unemployment typically signals weaker demand and may ease wage pressures.