UK wage growth eases, a sign of cooling labour market
UK WAGE growth slipped in the three months to August, indicating a cooling of labour-market pressures that will make it easier for the Bank of England to keep interest rates on hold next month.
In a curtailed set of labour market data, which did not include figures on employment and unemployment, the Office for National Statistics (ONS) said average earnings excluding bonuses rose 7.8 per cent from a year earlier. That was down from an upwardly revised 7.9 per cent in July, the fastest since the data series began in 2001.
Crucially, growth in private-sector regular pay growth eased to 8 per cent from 8.1 per cent, with the single-month reading dropping to 7.8 per cent.
The dip in wage growth, which comes one day before official figures are forecast to show inflation slowed further in September, will help build confidence among BOE policymakers that their string of 14 consecutive interest-rate hikes since the end of 2021 is having an effect.
It provides evidence of a trend that has been emerging in surveys of the labour market. The variance between ONS data and anecdotal reports has left BOE chief economist Huw Pill convinced that official readings of wages are now an “outlier,” he said on Monday (Oct 16).
The pound extended losses, falling as much as 0.3 per cent to $1.2182.
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“Signs of cooling labour demand underscores a dwindling economic growth momentum” said Yael Selfin, chief economist at KPMG UK. Now the “tide has turned” on vacancies, which had been stubbornly high since the end of Covid lockdowns, “we expect less pressure on pay,” she added.
The BOE held rates at 5.25 per cent at their last policy decision in September and are forecast to do so again in November, though traders still favour one more hike by early next year. Pill said it would be premature to declare the fight against inflation over, with policymakers still on alert for signs of persistent inflation.
Separate figures on Tuesday showed the number of employees on payroll falling 11,000 in September, following an 8,000 drop in August. Vacancies meanwhile fell to 988,000 in the three months to September, extending a long decline. The real-estate sector registered the biggest drop as the housing market struggles with higher mortgage rates.
And in further evidence that pay pressures are easing, real-time data based on tax authority records showed growth in median employee earnings slowed sharply to 5.7 per cent in September, the lowest for almost two years.
Including bonuses, average earnings growth slowed to 8.1 per cent in the three months to August. That was driven by the public sector, where one-time payments to health workers and civil servants to end strike action saw pay growth soar to a record 12.5 per cent. Private sector pay rose 7.1 per cent, down from 7.7 per cent in the previous three months.
Households enjoyed the strongest growth in regular pay in real terms since October 2021, clawing back some of the losses made during a prolonged period of inflation outstripping wage increases. Adjusted for CPI inflation, pay rose 0.7 per cent in the three months to August compared with a year ago, up from a 0.1 per cent increase in the three months to July.
“It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets,” said Chancellor of the Exchequer Jeremy Hunt. “To keep this progress, we must stick to our plan to halve inflation.”
Tuesday’s release gave little indication as to the state of the wider employment market, due to an inadequate number of responses to the Labour Force Survey which has been postponed by a week.
Economists will be watching closely when data on employment, unemployment and inactivity rates are released next week, for signs of a continued cooling in the labour market after unemployment in the three months to July hit its highest level since 2021.
In the meantime, all eyes will now turn to inflation data due on Wednesday. CPI inflation is expected to slip to 6.6 per cent in September from 6.7 per cent a month earlier. BLOOMBERG
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