Tesco’s UK sales growth has more than halved as it said the conflict in the Middle East had created “ongoing uncertainty for many households”, knocking its shares in early trading.

The UK’s biggest retailer said comparable sales rose 1.8% to £13.4bn in the three months to the end of May, below both the 4.2% reported in the previous quarter and the 2.3% growth City analysts had expected.

The numbers were, however, lifted by an 8.9% rise in online sales and group sales rose 1% to £16.8bn.

The slowdown in UK sales growth reflected dampened consumer confidence in the face of higher fuel prices linked to the conflict in the Middle East. Exceptionally warm and sunny weather during the same period last year helped to increase sales of food and drink, distorting comparisons with this year.

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Shares in Tesco are down 2.8% in early trading, among the larger fallers on the FTSE 100 share index this morning.

The Resolution Foundation have calculated that private sector pay in the UK continues to shrink, once you account for inflation.

That’s because annual average regular earnings growth was 2.9% for the private sector in February to April, slightly behind the pace of price rises.

Louise Murphy, senior economist at the Resolution Foundation, explains:

“The UK labour market is weaker than it has been in recent years. This weakness is showing up through rising irregular work in the form of self-employment and zero-hours contracts, higher youth unemployment and lower wage growth.

“The real wages of private sector workers have now been falling since last October. With further inflation rises expected over the coming months, these workers should brace themselves for this squeeze to continue over the summer.”

It’s clear that the labour market is not out of the woods yet, argues Sanjay Raja, chief UK economist at Deutsche Bank.

And as such, he sees little reason for the Bank of England to rush into raising interest rates.

Raja says:

Survey data remain weak. HR1 advanced redundancy notifications have jumped in April and May. The claimant count rate is also back to its highest level since March last year. And still falling vacancies point to more slack in the jobs market.

We expect the labour market to remain a bit sluggish through the coming months. But there is some light at the end of the long enduring US/Iran conflict. Should the MoU [memorandum of understanding] hold, we would expect employment trends to pick back up on the margins.

For now, today’s mixed data buys the MPC (monetary policy committee) more time to wait and see how the economy evolves and how geopolitics play out. We see little rush for the MPC to push for rate hikes just yet. Instead, the Bank can let the dust settle on the energy conflict before recalibrating policy again.

Worryingly, the number of vacancies in the UK economy has dropped to a five-year low.

The Office for National Statistics estimates that vacancies fell by 19,000 in March to May, to 707,000 – the lowest level since February to April 2021.

Anna Leach, chief economist at the Institute of Directors, blames the government, saying:

“Low levels of employer demand for labour unfortunately reflect a combination of government policies which have increased the cost and risk associated with hiring employees. This is choking off work opportunities for young people in particular, as jobs continue to decline in important youth employment sectors such as accommodation and food and retail.

“The cost of doing business has risen sharply in recent years, driving persistent weakness in hiring.

On the face of it, the latest UK jobs report doesn’t look so bad, says ING economist James Smith:

The unemployment rate ticked down to 4.9%. Payrolled employment rose after three consecutive monthly declines (it increased by a marginal 2000 workers). Average weekly earnings growth was higher than expected.

But the details still look dovish for the Bank of England. And the report is another reminder that the case for higher rates is far from the clear cut.

Take those payroll numbers. April’s atrocious 100,000 fall in employment has been cut in half, after revisions. That’s not a surprise; the latest reading is always prone to change – and usually in an upwards direction. But the newly revised April figure, showing a 53k drop in workers, is still pretty bad. The better May figure should be read in that context – and if you strip out government, private-sector payrolls still fell.

Another encouraging sign in today’s UK jobs report – fewer people fell off company payrolls than first feared in April.

The Office for National Statistics has halved its estimate for payroll losses in April to 53,000, down from its first estimate of a decrease of 100,000.

For May, the ONS estimates payrolls rose by 2,000.