UK wage growth slows as jobs market cools

Wage growth slowed to the weakest pace in more than two years in August amid further signs of a cooling jobs market that could prompt more interest rate cuts this year.
Official figures showed a decline in average weekly earnings growth, excluding bonuses, from 5.1 per cent to 4.9 per cent in the three months to August, the slowest pace since June 2022. The figure was in line with economists’ forecasts.
When including bonus payments, wage growth was lower at 3.8 per cent, according to the Office for National Statistics. Earnings growth has been steadily falling over the last year due to interest rate rises as the Bank of England attempted to dampen wage growth in an effort to reduce inflation.
In further signs of a slowing jobs market, the ONS said the number of employees on payrolls dropped by 15,000 between August and July, after a 35,000 drop the previous month. The total number of job vacancies also fell again by 34,000 in the three-month period, while the number of people claiming unemployment-related benefits rose.
The unemployment rate fell slightly from 4.1 per cent to 4 per cent, defying expectations of no change in the three months to August.
The ONS’s figures chime with a series of surveys in which businesses have said they are slowing down the pace of their hiring and awarding small pay increases as inflation has fallen rapidly since 2022.
Consumer price growth is expected to have dropped below the Bank’s 2 per cent inflation target when figures for September are released on Wednesday.
David Freeman, head of the ONS’s labour market division, said: “Pay growth slowed again, with last year’s one-off payments made to many public sector workers continuing to affect the figures for total pay. Vacancies have fallen once more, with most industries seeing a fall on the quarter. However, the total still remains a little above its pre-pandemic level.”
The ONS’s labour market statistics are in the process of being revamped after falling response rates to its surveys, which ask people about their employment status. Freeman said the figures for August should be treated with “caution … while we continue to improve survey responses”.
A slowing labour market may embolden rate-setters at the Bank of England to cut interest rates again this year after they lowered the base rate from 5.25 per cent to 5 per cent in August. Financial markets are betting on at least two quarter-point reductions from the monetary policy committee before the end of the year.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said “slowing wages make a November rate cut a slam dunk”.
“A 25 basis point November Bank rate cut is a racing certainty based on pay growth weakening, but we think the monetary policy committee will cut rates only once a quarter after that as the labour market remains tight, even if it is easing,” he said.
Analysts at Jefferies, the investment bank, cautioned that the latest data might bolster the argument of hawks within the Bank’s rate-setting committee, who are fearful of inflation persistence.
“We expect the BoE to deliver a 25 basis point cut in November, bringing rates to 4.75 per cent by year-end,” they wrote.
“It is clear that governor [Andrew] Bailey is open to cutting rates at a faster pace, but we question whether the data will support such an approach with wages and services inflation around 5 per cent.”