The ongoing Middle East crisis has led to soaring energy prices across the UK and much of Europe, further contributing to higher living costs.
UK wages continued to drop in June, as workers faced increased pressure from a worsening cost of living crisis driven by the economic blow of the ongoing Iran war.
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Annual growth in average earnings including bonuses was 4.1% in the three months to June 2026, according to official figures from the Office for National Statistics. This was down from 4.3% in the three months to May, although above analyst expectations of 4%.
Annual growth for average earnings excluding bonuses was 3.5% for this period.
Annual average regular earnings growth for the public sector was 6.1%, which continued to be impacted by differences in pay awards timing this year. For the private sector, it was 2.8%.
This comes as UK residents continue to battle with higher living costs due to the Middle East conflict. Official figures due to be released on Wednesday are likely to highlight that a surge in energy bills pushed UK inflation to almost 3% last month.
Higher water bills could also be seen, as much of the UK is currently in drought, with the water regulator Ofwat considering implementing "surge pricing" on water usage during droughts. If so, consumers would have to pay more to use water during summer, while bills are likely to fall in winter.
Similarly, they may have to pay more when they cross a certain water usage threshold.
The Bank of England is also considering raising interest rates from as early as September, to reduce the chances of sticky-high inflation becoming more firmly rooted in the economy.
The current economic picture also showcases the significant challenge Andy Burnham's new government will have to overcome, in order to reduce financial pressure on both businesses and households, before what is likely to be a difficult autumn budget.
UK vacancies fall on potential "Burnham bounce"
Vacancies in the UK dropped to 707,000 in the May to July 2026 period, with early estimates pointing to a decrease of 6,000 or 0.8%, compared with the previous February to April period.
Vacancy estimates also fell in 9 of the 18 industry sectors in the May to July quarter, with the largest decreases seen in human health and social work activities, down 5,000 vacancies, and in education, down 4,000.
The number of payrolled employees dropped by 86,000 or 0.3% on an annual basis in the three months to June, and by 37,000 or 0.1% on a quarter-on-quarter basis.
"Small businesses, the lifeblood of the UK economy, are buckling under the pressure of increased costs and changes to employment law have made the prospect of taking a punt on a new face increasingly difficult," Danni Hewson, head of financial analysis at AJ Bell, said in an email note.
"Big jumps in public sector pay and the timing of those increases continue to influence the headline wage growth numbers, which edged up slightly in the three months to June," she continued.
"This is something Bank of England rate setters will be mindful of when they meet to discuss interest rates next month."
