UK earnings growth has dropped to its lowest level in over two years, with further indications of a weakening jobs market, according to official figures. The Office for National Statistics (ONS) revealed that average regular wage growth dropped to 4.9 percent in the three months to July, down from 5.1 percent in the previous three months.
This represents the lowest level since the three months to June 2022. However, earnings growth continues to outpace inflation, with pay rising by 2.6 percent in the three months to August when taking into account the Consumer Prices Index inflation.
Pay growth has sharply declined after reaching a record high of nearly eight percent in summer 2023, and this latest slowdown may provide the Bank of England with more leeway to reduce interest rates again next month. ONS data showed a decrease in vacancies by 34,000 to 841,000 in the quarter to September, marking the lowest level since March to May 2021.
Additionally, the number of workers on UK payrolls fell by 35,000 between July and August. Despite this, the UK unemployment rate surprisingly dropped to four percent in the three months to August, down from 4.1 percent in the previous quarter.
However, the ONS advised caution when interpreting this estimate due to responses to its jobs survey. There was a significant increase in employment by 373,000 the largest since records began in 1971 bringing the total number of people in work to 33.4 million in the quarter to August.
David Freeman, head of the ONS labour market and household division, commented: “Over the last three months the number of people on payrolls has stayed broadly flat.”
He also highlighted differing perspectives from various data sources, cautioning: “The labour force survey shows a different picture and we would advise caution when interpreting changes in these data while we continue to improve survey responses.”
Discussing the job vacancy trend, Mr Freeman added: “Vacancies have fallen once more, with most industries seeing a fall on the quarter.”
Work and Pensions Secretary, Liz Kendall MP commented: “To get Britain growing again we need to get Britain working again. Millions of people are locked out of work due to long-term sickness. This is not good for them, for our economy or for the taxpayer.
“That’s why we will bring forward the biggest reforms to employment support in a generation – overhauling jobcentres, delivering a Youth guarantee so every young person is learning or earning, and new work, health and skills plans to tackle inactivity – unlocking opportunity and potential in every area of the country.”
In another section of the economic forecast, officials anticipate Wednesday’s official figures to reveal a sharp drop in September inflation, fueled by lower fuel prices, with experts predicting a decrease to 1.9 percent from August’s 2.2 percent.
This expected dip in inflation, coupled with muted wage growth and indications of a cooling jobs market, supports projections that the Bank of England may reduce interest rates in November from five percent to 4.75 percent.
Bank governor Andrew Bailey has also hinted at potential rate cuts, declaring that future reductions could become “more aggressive”.
PwC UK economist Jake Finney commented on the wage slowdown, saying it “indicates that the softening in demand for labour is starting to weigh on wage growth”.
Mr Finney suggested that “A quarter-point cut in November still seems most likely, given signs that wage growth is moderating and increasingly dovish commentary from governor Andrew Bailey.”
