Wage growth comes in ahead of expectations despite loosening labour market
Bank of England rate-setters received a mixed picture from the latest labour market figures, with progress on wage growth stalling even as unemployment crept up.
According to the Office for National Statistics (ONS), pay growth excluding bonuses eased to 4.8 per cent in the three months to September, down from 4.9 per cent previously but slightly ahead of expectations.
This confirmed that regular pay growth remained at its lowest level since June 2022.
Including bonuses, however, annual wage growth rose to 4.3 per cent, up from 3.8 per cent last month and comfortably ahead of City projections.
Liz McKeown, director of economic statistics at the ONS, said the figures for total pay were impacted by one-off payments made to public sector workers last summer.
Bank of England officials tend to put more emphasis on private sector wage growth, which remained steady at 4.8 per cent. As a result, Paul Dales, chief UK economist at Capital Economics, said rate-setters could “look through the rebound in wage growth”.
Adjusted for inflation, regular pay grew 1.9 per cent. Liz Kendall, work and pensions secretary said it was “encouraging” that real pay was improving, but stressed “more needs to be done to improve living standards”.
Unemployment, meanwhile, picked up to 4.3 per cent from 4.0 per cent previously, which was ahead of expectations.
However, Thomas Pugh, economist at RSM UK said that the “volatility in the unemployment rate this year looks particularly suspicious, so we doubt the MPC will pay much attention to it”.
While the ONS itself continued to “advise caution” when interpreting the figures given the low response rates to its labour force survey, there were other indicators of a loosening labour market.
The figures showed that vacancies fell for the 28th consecutive period, even if there are still slightly more job openings than there were pre-pandemic.
The number of payrolled employees also fell by 5,000 in October, the fifth monthly fall in seven months. This brought the annual growth rate in the number of payrolled employees to 0.3 per cent.
The latest figures on the labour market come just a week after the Bank of England cut interest rates for the second time this year, bringing the Bank Rate down to 4.75 per cent.
Despite cutting interest rates, Andrew Bailey, Governor of the Bank, cautioned that the Bank would take a gradual approach in the months ahead, partly due to concerns about the jobs market.
He suggested that the labour market continued to give policymakers “mixed signals“.
Although some surveys indicate that there is more slack in the economy than the official figures imply, the Bank suggested that the labour market “appears relatively tight by historical standards”.
A tight labour market should help to sustain strong pay growth, which would give consumers more spending power and put up wage bills for firms.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the data would likely reinforce the Bank’s gradual approach to cutting interest rates.
“Unemployment is likely gradually rising, the labour market is loosening but it remains tight. Similarly, wage growth is gradually slowing but remains too high still to deliver inflation sustainably at target,” he said.
“Rate setters will, therefore, continue to guide that further gradual rate cuts are on the cards.”