Wage growth ‘past its peak’ in boost for Bank of England’s attempts to contain inflation
The rate of pay rises slowed from record levels in a boost for the Bank of England, but remained at elevated levels, official figures show.
According to figures from the Office for National Statistics (ONS), average wage growth excluding bonuses was 7.8 per cent between June and August, down slightly from last month and in line with economists’ predictions.
However, including bonuses, annual wage growth dropped to 8.1 per cent – a bigger than expected fall. The rate of pay increases was affected by one-off payments to NHS workers and civil servants.
The finance and business services sector saw the largest annual regular growth rate at 9.6 per cent, followed by the manufacturing sector at eight per cent. Pay growth in manufacturing was one of the highest rates since records began.
The data will reassure the Bank of England that its aggressive monetary tightening cycle is working.
The Bank has been persistently surprised by the strength of wage growth over recent months, which has raised the prospect of a wage-price spiral, which is when workers demand higher wages to keep up with inflation, forcing firms paying wages to hike costs further.
Although the rate of pay rises is too high to tolerate for long, Ashley Webb, UK economist at Capital Economics, said the data suggests wage growth is “past is peak”.
“Cooling labour market conditions appeared to start feeding through into an easing in wage growth in August,” she said. This will ease pressure on the Bank of England to hike interest rates again.
Although the rate of wage increases will still give the Bank pause for thought, policymakers have seemed increasingly sceptical over the reliability of the data.
In September, the Bank noted that ONS figures were difficult to reconcile with other estimates while Huw Pill suggested the ONS figures are “increasingly an outlier” in estimates for wage growth.
Despite falling slightly, the figures showed that pay increased at a faster rate than inflation for the first time since October 2021, giving workers a real income boost. Taking into account inflation, regular pay rose 0.7 per cent in the three months to August compared to last year.
The Chancellor of Exchequer, Jeremy Hunt said: “It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets. To keep this progress, we must stick to our plan to halve inflation.”
The ONS did not publish figures on unemployment today. The data has been delayed to “improve the quality” of the estimates with it now due to come out next Tuesday.
However, other ONS figures out today point to a continuing loosening in the labour market. Provisional estimates on employment suggested that employment dropped by 11,000, although these figures are often subject to major revisions. There was also a fifteenth consecutive fall in the number of job vacancies.
Hannah Slaughter, senior economist at the Resolution Foundation, warned that a continuing weakening in the labour market would put further pressure on wages going forward.
“Following yet another painful squeeze in recent years, pay packets have staged a mini recovery this year. But with the labour market continuing to cool, the big question going into this autumn is how long this recovery will last,” she said.