Wage growth has fallen to a two-year low of 5.4 per cent in the UK raising hopes of a further interest rate cut in the autumn, latest figures revealed. Data from the Office for National Statistics (ONS) show that average regular pay, not including bonuses, fell from 5.7 per cent to 5.4 per cent in the three months to June.
It was the smallest nominal increase since July 2022 but still represented a 2.4 per cent rise in real terms after inflation is taken into account. Wage growth is closely watched by rate setters on the Bank of England’s Monetary Policy Committee as an indicator of the underlying level of inflation in the economy.
Average wages have been buoyed by a 9.8 per cent rise in the minimum wage in the spring and will be given a further boost by public sector pay awards agreed by the Labour government including 22 per cent over two years for junior doctors.
Senior economist at the Resolution Foundation think tank, Hannah Slaughter said: “Workers’ pay packet continue to grow coming out of the cost-of-living crisis, but the recent strong real wage growth is running out of steam as productivity stagnates and the jobs market cools.
“While monetary policy makers may be less worried now about pay rises fuelling inflation, they should be concerned about the lack of reliable data on the wider state of the labour market.” Head of money and markets at Hargreaves Lansdown, Susannah Streeter, said: “Red hot wage growth has been doused with another bucket of cold water, but there are still lingering concerns it could ignite again, due to a small dip in unemployment. It still seems highly likely there won’t be another rate cut in September.
The data also revealed a surprise fall in the rate of unemployment, down to 4.2 per cent over the three months to June, from 4.4 per cent over the previous three months. A consensus of economists had predicted a rise to 4.5 per cent for the quarter. The statistics body said it reported a broad decrease in unemployment among surveyed Britons over 25.
The data also highlighted a “modest increase” in employment for the quarter, in another positive sign for the UK labour market. Estimates for the number of payrolled employees in the UK increased by 14,000 between May and June 2024, the ONS said. Another decline in vacancy rates also showed continued pressure in the UK job market. The number of vacancies in the UK decreased by 26,000 to 884,000 for the three months to June.
Chancellor Rachel Reeves said: “Today’s figures show there is more to do in supporting people into employment because if you can work, you should work.” Economists indicated the Bank of England could seek to hold interest rates at 5 per cent – after a reduction in August – on the back of continued wage growth, before resuming cuts later in the year.
Banks and Retailers boosted by UK outlook: Retailers, banks and housebuilders stood out on a steady London stock market last week, as brightening hopes for the UK economy lent some support. It came from jobs and wages data that was well-received in the financial district, and played into expectations that the Bank of England’s second rate cut of the year would come in November.
The FTSE 100 inched seven points lower to 8,203,04, with heavily weighed mining stocks holding it back in line with lacklustre commodity markets. Chilean copper giant, Antofagasta led them lower, down 33p to 1847.
There was a more domestic feel to the top of the market, where some of the best gains came for retailers, mortgage banks and housebuilders, likely to be among the main beneficiaries from a stronger UK economy. (The writer is our foreign correspondent based in the UK)
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