UK pay growth has eased back to its lowest level since mid-2022, according to the latest set of official figures.
Regular weekly earnings, excluding bonuses, rose by 4.9% in the three months to August, meaning growth has now pared back sharply from the near-8% increases seen in 2023.
Here we look at what the latest data means.
– Why is it good news that wage growth is slowing?
The Bank of England has been watching wage growth closely as a gauge of inflation pressures in the UK, which has held it back from cutting interest rates more aggressively.
Inflation has returned close to its 2% target, but there have been fears that April’s hike in the National Living Wage and ongoing impacts of sky-high inflation in recent years could push up prices once again.
So while lower wage growth may mean smaller pay rises, it also signals that lower borrowing costs could be on the cards for homeowners.
– What does this mean for interest rates?
Rob Wood, chief UK economist at Pantheon Macroeconomics, said a November rate cut was now a “slam dunk” after the latest figures.
Most economists believe the Bank will now reduce rates from 5% to 4.75% next month.
But falling wages coupled with signs that the jobs market is cooling have put further cuts back on the table and the Bank’s boss Andrew Bailey said recently that rate reductions could become “more aggressive”.
– Why do experts see the jobs market weakening when unemployment is falling?
The ONS said that the UK rate of unemployment fell back unexpectedly to 4% in the three months to August, down from 4.1% in the previous quarter.
There was also a 373,000 jump in employment – the largest since records began in 1971 – taking the total number in work to 33.4 million in the quarter to August.
The ONS has been ramping up efforts to increase response rates to its Labour Force Survey (LFS) as part of an overhaul, but these initial changes have seen more employed people taking part, skewing the results.
– What is the broader picture for the jobs market?
Other indicators show a weakening employment sector on the whole, with vacancies dropping by 34,000 to 841,000 in the quarter to September, which is the lowest level since March to May 2021.
More timely data also showed workers on UK payrolls fell by 15,000 in September to 30.3 million, after a revised 35,000 drop in August.
– What does this mean for workers’ wages going forwards?
The jobs market coming off the boil may mean good news for borrowers in the form of lower interest rates, but economists believe it will also mark the end of bumper pay hikes.
Job market weakness suggests that the brief era of health pay growth could end soon. @charliejmccurdy has the details ⤵️ https://t.co/uXNO1wyBWm
— Resolution Foundation (@resfoundation) October 15, 2024
Charlie McCurdy, economist at the Resolution Foundation, said: “This softening means that wage rises are also starting to weaken.
“Should these labour market trends continue, Britain’s brief era of healthy pay growth could soon end.”
But with inflation now having calmed down after surging to near-40 year heights amid the cost-of-living crisis, wages are at least still rising faster than prices.
Pay growth lifted by 2.6% in the three months to August with Consumer Prices Index inflation (CPI) taken into account.
And with inflation expected to fall further when September data is released on Wednesday, workers are set to see their wages outstrip inflation for some time yet.
