U.K. Wage Growth Picks Up, Jobless Rate Falls Ahead of Bank of England Meeting — 2nd Update

By Ed Frankl

Wage growth in the U.K. rose a little in the three months through August, with unemployment also declining, boosting the likelihood that the Bank of England will raise its key rate next month.

Annual weekly earnings growth, excluding bonuses, rose to 3.7%, from an upwardly revised 3.6% in the three months through July, Britain's Office for National Statistics said. Economists polled last week by The Wall Street Journal had expected 3.6%.

Adding to evidence of a tighter-than-forecast labor market, the unemployment rate unexpectedly fell to 4.7% in June-August, from 4.9% in May-July, reaching its lowest rate since July last year. Economists expected the rate to hold steady.

While inflation has risen in recent months, driven by higher energy costs stemming from the war in the Middle East, policymakers at the BOE have noted that there has been few signs of those costs increasing demands for higher wages.

The central bank's Governor Andrew Bailey said last week that evidence of spillover into second-round inflationary effects had so far been "quite subdued".

The pound gained against the dollar after Tuesday's data release. Investors expect the BOE to raise its key rate to 4.0% early next month.

"These figures likely seal the deal for a November rate rise, by suggesting that current labor-market conditions are not weak enough to bring inflation under control, particularly given the economy's greater-than-expected resilience," said Suren Thiru, economist at the Institute of Chartered Accountants in England and Wales.

Much of Britain's stronger-than-expected economic growth this year has been built on investment related to artificial intelligence.

But a side effect of this year's AI-fuelled growth has been weaker hiring demand, compounded by elevated employment costs, Thiru said.

Annual private-sector earnings growth, closely watched by the BOE, edged only a little higher to 3.0% in the three months through August, meaning it is lower than the rate of inflation. September's rate of inflation is expected to push higher in data due on Wednesday.

Nevertheless, there were signs that the labor market remains weak. Vacancies fell by the largest amount since the start of the year, the ONS said. Smaller firms continued to suggest that they might not be recruiting due to increased labor costs, it said.

"With businesses' energy costs likely to fall only slowly, we still think hiring will stay subdued and any second-round inflation effects will be limited," said Ashley Webb, economist at Capital Economics, in a note to clients.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

October 20, 2026 03:38 ET (07:38 GMT)