British workers are seeing the weakest pay deals in over three-and-a-half years, with new data showing pay settlements fell again in July. Hiring is still slowing, though the pace of decline has

eased slightly, according to fresh surveys of employers and recruiters.

For the Bank of England, this may be welcome news—it suggests inflationary pressures from rising wages could be easing. But for businesses, the focus is shifting to November’s budget, where fears of further tax hikes are running high.

Figures from Incomes Data Research (IDR) show the median pay settlement in the three months to July slipped to 3.0%, down from 3.4% in the previous quarter—the lowest level since December 2021. Only 9% of employers handed out raises of 4% or more, compared with nearly 40% in June. However, IDR cautioned that July is typically a quiet month for pay awards. The data covered 32 settlements, affecting just under 700,000 workers.

A separate Bank of England survey suggested that businesses raised pay by 4.7% in the three months to July, and expect increases of around 3.6% over the next year. The BoE itself predicts inflation will hit 4% in September, and has said pay growth closer to 3% is necessary to bring inflation back to its 2% target.

Meanwhile, the Recruitment and Employment Confederation (REC) reported that starting salaries for permanent staff are now rising at the slowest pace in more than four years. Hiring also continued to weaken, though by the smallest margin in three months. At the same time, candidate numbers jumped sharply—the biggest rise since late 2020—as redundancies and job insecurity push more people back into the market.

“All eyes are now on the Autumn Budget,” said REC chief executive Neil Carberry, warning that additional costs on hiring could make things worse.

Businesses are still reeling from Labour’s first budget last October, which included a £25 billion hike in employers’ social security contributions. With higher borrowing costs and delays to welfare savings, many economists believe finance minister Rachel Reeves will have little choice but to announce further tax increases in November. Photo by Images George Rex from London, England, Wikimedia commons.