UK Wage Growth Slows as Iran Conflict Fuels Cost-of-Living Pressures

Average earnings in the United Kingdom grew 4.1 % year-on-year (including bonuses) in the three months to June 2026, according to the Office for National Statistics (ONS). That rate fell from 4.3 % in the preceding three-month period and sits just above analysts’ 4 % expectation. Excluding bonuses, growth was 3.5 %. Public-sector earnings rose 6.1 % while private-sector growth lagged at 2.8 %. The slowdown coincides with a broader cost-of-living squeeze linked to the ongoing war in Iran, which has pushed energy prices higher and contributed to inflation near 3 % in the latest month.

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The conflict in Iran has disrupted global energy markets, raising UK household energy bills and adding to an existing drought-driven water-price debate. The water regulator Ofwat is weighing “surge pricing” that would increase charges during periods of high usage. At the same time, the Bank of England is weighing a possible interest-rate rise as early as September to curb sticky inflation. These macro pressures arrive as the newly elected government of Prime Minister Andy Burnham confronts a challenging autumn budget.

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• ONS average earnings (incl. bonuses): 4.1 % YoY, down from 4.3 %.

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• Average earnings (excl. bonuses): 3.5 % YoY.

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• Public-sector earnings growth: 6.1 % YoY.

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• Private-sector earnings growth: 2.8 % YoY.

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• Payrolled employee count fell by 86,000 (-0.3 %) annually and 37,000 (-0.1 %) quarter-on-quarter.

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• Vacancies declined to 707,000, a drop of 6,000 (-0.8 %) from the previous quarter.

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• The Bank of England signaled it may raise interest rates from September to prevent inflation from becoming entrenched.

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• Ofwat announced it is considering “surge pricing” for water usage during droughts, which would raise summer water bills while potentially lowering winter charges.

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• Andy Burnham’s administration is expected to address the dual pressures on businesses and households in the upcoming budget.

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• “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

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These points illustrate how external geopolitical shocks are intersecting with domestic policy decisions, creating a tight fiscal environment for both workers and employers in the United Kingdom.

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