UK payrolls fall 26,000 as public-sector pay keeps wage growth at 3.5%

HMRC's early count of UK payrolled employees fell by 26,000 in August, and the 3.5% wage rate that arrives with that print is no longer a private-sector story. Public-sector regular pay rose 6.3% in the three months to July; private-sector pay rose 2.9%, next to the Bank of England's 3.0% forecast for the third quarter. Thursday's vote on Bank Rate is whether the cooling in hiring outweighs a whole-economy wage number that public-sector awards are still carrying.

NHS timing is carrying the 3.5%

Annual growth in regular average weekly earnings, excluding bonuses, was 3.5% in May to July, matching a Reuters poll of economists. The ONS said that rate has been relatively stable over the past five consecutive three-month periods, after a year of slowing growth. Total pay, including bonuses, slowed to 3.9% from 4.2% in the prior three-month period, the lowest since September to November 2020. Adjusted for CPIH inflation, regular pay was up 0.6% and total pay up 0.9%.

The ONS attributed the 3.4 percentage-point gap between public-sector regular pay at 6.3% and private-sector pay at 2.9% to the timing of NHS awards this year. It said some NHS staff pay rises were paid earlier in 2026 than in 2025, causing a base effect in the health and social work industry. NHS England said the Agenda for Change award for 2026/27 was implemented in staff pay in April. That split is the part of the bulletin that maps onto the Bank's forecast. In its July Monetary Policy Report, the Bank of England projected private-sector regular average weekly earnings at 3.0% in the third quarter of 2026. Private firms are there. The 3.5% whole-economy rate is not a private-pay overshoot.

The cooling is in headcount. The 3.5% is not.

Payrolls fall 26,000; vacancies at 702,000

The Office for National Statistics put payrolled employees at 30.2 million in August, down 0.1% on the month and down 145,000, or 0.5%, on the year. The August figure is an early HMRC Pay As You Earn estimate and is likely to be revised. July was revised to a 19,000 decline from a first estimate of 13,000. Exchange Rates UK said economists had expected a 5,000 fall. The Labour Force Survey held unemployment at 4.9% in May to July.

The ONS estimated 702,000 vacancies in June to August, down 8,000, or 1.1%, from March to May, and said openings have been broadly flat since the start of 2026. Reuters put the 702,000 reading as the lowest since the three months to April 2021. Liz McKeown, the ONS director of economic statistics, said payrolls "continue to edge down, with falls over the past year particularly evident in the retail and hospitality sectors," and that smaller firms "continue to report that increased labour costs are affecting hiring decisions."

The 6-3 split is about energy, not wages

At the meeting ending July 29, the Monetary Policy Committee voted 6-3 to keep Bank Rate at 3.75%. Three members wanted a quarter-point increase to 4%. The hold camp had pointed to slowing wages and a softer labour market. The minutes said the risk of second-round price and wage effects is greater the longer higher energy prices persist. Governor Andrew Bailey said then that inflation had fallen faster than expected, but that the Middle East conflict meant high and volatile energy prices "will cause inflation to rise again later this year."

July CPI, the latest published, was 2.9%, up from 2.6% in June. Core CPI was unchanged at 2.6%; services inflation eased to 3.4% from 3.6%. Monthly GDP rose 0.4% in July, after 0.3% in June, the ONS reported on Friday, September 11; growth in the three months to July was also 0.4%. That output print does not cancel falling payrolls. It does mean Thursday's committee is not looking at a labour market and an economy that tell the same story.

Wednesday's CPI is what can still move Thursday

Sterling traded at 1.3475 against the dollar at 8:45 a.m. in London, down 0.20% on the day, and at 1.1677 against the euro, down 0.12%, a move Dave Taylor at Exchange Rates UK tied to payrolls falling more than expected. Later Tuesday quotes put the pound nearer 1.3496 against the dollar. US-listed UK funds have not had a cash session since the print.

Reuters said investors price a roughly one-in-three chance of a quarter-point hike on Thursday, with a November increase seen as almost certain and another in December. Private pay is on the Bank's forecast. Payrolls are still falling. The August inflation print, due at 7:00 a.m. on Wednesday, September 16, is the number that can still change which half of that mix Thursday prices.