Weak wage growth and a subdued jobs market have strengthened the case for the Bank of England to keep interest rates unchanged this week, as policymakers weigh easing domestic price pressures against the inflationary impact of higher energy costs.

UK unemployment remained at 4.9 per cent in the three months to July, according to the latest Office for National Statistics labour market figures.

Headline regular pay growth held at 3.5 per cent, supported by stronger public sector settlements. Private sector regular pay, which is closely watched by the Bank as an indication of underlying inflationary pressure, remained weaker at 2.9 per cent.

The figures add to evidence that the labour market is exerting less upward pressure on wages and prices, potentially giving members of the Bank's Monetary Policy Committee more reason to resist increasing borrowing costs.

The MPC voted by six to three in July to leave Bank Rate at 3.75 per cent, with three members preferring a quarter-point increase to 4 per cent. Its next interest rate decision is due on September 17.

However, the Bank faces a difficult balance. Higher global energy prices have increased the near-term inflation outlook, with the Bank forecasting in July that consumer price inflation would average 3.2 per cent in the final quarter of 2026.

"[The] labour market remains a key source of disinflationary pressure," the analyst said. "Workers' bargaining power remains weak and, despite higher energy prices feeding through to households over the coming months, a meaningful rebound in wages is not expected."

The analyst expects headline pay growth to ease towards 3 per cent by the end of the year.

Vacancies also showed little evidence of a significant recovery, suggesting employers remain cautious about recruitment. The analyst warned that elevated borrowing costs, weak demand and geopolitical uncertainty were likely to constrain hiring and push unemployment gradually higher.

The Bank has previously said there are clear signs that underlying wage and price pressures are easing, but warned that persistent energy price increases could generate broader inflationary effects.