Average weekly earnings excluding bonuses were 5.4% higher than a year earlier in the three months to the end of June, down from 5.8% in the three months to May and the lowest since August 2022, the Office for National Statistics said.
However, the jobless rate (based on a survey currently being reviewed by the ONS) fell to 4.2% from 4.4%, its lowest level since February, contradicting expectations for a rise in a Reuters poll of economists.
The British pound strengthened against the US dollar immediately after the data was released.
When the Bank of England cut interest rates on August 1, after keeping them at a 16-year high of 5.25% for almost a year, it said it would keep a close eye on wage growth. Investors see a one-in-three chance that the Bank of England will cut rates in September.
Wages are still growing at almost twice the pace the Bank of England believes is compatible with keeping inflation at its 2% target. Wednesday’s data is likely to show inflation is back above target.
“Today’s data are consistent with a gradual and cautious tapering of policy tightening. But… firmer GDP growth, if sustained, could lead to a firmer recovery in the labour market, potentially leading to a shallower rate-cutting cycle,” said Sanjay Raja, chief UK economist at Deutsche Bank.
The number of employed people rose by 97,000, much more than the 3,000 predicted by economists.
Raja said the lower unemployment rate could also be partly due to a slight overestimation of unemployment by the ONS in the past. He said response rates to its labour force survey had improved since the start of the year.
The Resolution Foundation think tank said it feared the ONS was still underestimating the number of people in employment.
(Source: Reuters)
IS WAGE PRESSURE EASED?
Employers expect lower headline inflation to ease wage pressures. The Chartered Institute of Personnel and Development said on Monday that employers expected to increase wages by 3%, the lowest level in two years.
Last month, Britain’s new finance minister, Rachel Reeves, approved pay rises of at least 5% for millions of public sector workers.
The BoE is more focused on private sector wages, which it expects to slow to 5% by end-2024 and 3% by end-2025.
Private sector regular wage growth in the three months to June slowed to 5.2%, its lowest level since May 2022, from 5.6% in the three months to May.
After adjusting for inflation, workers are now better off. Real wages, excluding bonuses, are 3.2% higher than a year ago, the largest annual increase since mid-2021.
Average earnings growth, including bonuses and other one-time payments, fell sharply to 4.5%, its lowest level since late 2021, reflecting retroactive payments to public health workers a year earlier.
Public sector regular wage growth fell to a five-month low of 6.0% from 6.4%.
The BoE is also looking at other inflationary pressures, such as labour shortages, which have increased during the COVID-19 pandemic.
The number of job vacancies fell to a three-year low of 884,000 in the three months to July, down from 1.3 million in mid-2022 but still sharply lower than at the start of 2020.
“Some vacancies are still difficult to fill and working-age inactivity, at a record 9.4 million, remains a key driver behind this,” said Jack Kennedy, senior economist at recruitment platform Indeed.
The share of working-age people who are not in work or unemployed (due to ill health, full-time education, caring responsibilities or other factors) rose to 22.2% in the three months to June, close to an eight-year high.
The new government wants to raise labour force participation to 80%, a level achieved by the Netherlands, Switzerland and New Zealand, but no larger economy.
Reeves said Tuesday’s data showed the importance of getting more people into jobs.
“This will form part of my budget later this year, where I will make tough decisions on spending, welfare and taxes,” he said. The budget is due on September 30.
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