Private-Sector Wage Growth Slows as Oil Prices Fuel Inflation Risk

Britain's latest pay figures have provided the Bank of England with evidence that private-sector wage pressure is fading. The Office for National Statistics reported a 2.9% increase in regular private-sector pay over the three months through July, while total pay grew 3.5% annually across the economy and 3.9% when including bonuses.

However, investors did not get relief in the gilt market, as the 10-year government-bond yield finished Tuesday near 5.4%. This increase was largely driven by expensive oil, which has revived inflation risk. Brent crude was quoted above $108 a barrel at the London close, raising concerns that utility, transport, and food costs will absorb more of workers' nominal gains.

The headline wage number also conceals an unusually wide split between public- and private-sector pay. Public-sector regular pay rose 6.3%, compared with 2.9% in the private sector, although the Office for National Statistics cautioned that the public figure continues to be distorted by the timing of pay awards.

Bank of England agents found average 2026 settlements around 3.6%, but only about a quarter of firms with post-April settlements identified inflation or cost of living as an influence. This evidence suggests a low-hiring economy with pockets of pay pressure, rather than a broad wage-price spiral.