Wage growth continues falling as signs emerge of loosening labour market
Annual wage growth eased while job vacancies fell again in the latest indication that the Bank of England’s interest rate hikes are filtering through into the labour market.
According to figures from the Office for National Statistics (ONS), annual wage growth including bonuses averaged 6.5 per cent between September and November, down from last month’s figure of 7.2 per cent and below the 6.8 per cent expected by economists.
Excluding bonuses, the figure was 6.6 per cent compared to the roughly 6.7 per cent predicted by experts.
“While annual pay growth remains high in cash terms, we continue to see signs that wage pressures might be easing overall,” ONS director of economic statistics Liz McKeown said.
“However, with inflation still falling more quickly, earnings continued to grow in real terms,” she continued. In real terms, total pay rose 1.3 per cent in September to November.
Chancellor Jeremy Hunt said: “It has been tough for many families recently, but with inflation now falling and the economy gradually returning to growth today’s continuing rise in real wages will offer further relief.”
The figures come amid a continuing debate on the timing of the first interest rate cut. After inflation fell faster than expected in the final few months of 2023, traders bet that the Bank would start cutting interest rates in May.
However, policymakers at the Bank have repeatedly stressed that further progress is needed on wage growth to justify loosening policy.
Policymakers at the Bank see bigger pay packets driven by a tight labour market as a sign that inflation is domestically driven.
In particular they are concerned that high wages will bed into the economy if rates are lowered too soon. A recent survey from the Bank showed that CFOs expect think wages will grow 5.2 per cent next year.
Analysts suggested this morning’s figures should reassure the Bank ahead of its next meeting in early February.
“The marked slowdown in pay growth will ease the Bank of England’s concerns of a potential wage-price spiral, which could lead to faster falls in inflation,” Yael Selfin, chief economist at KPMG UK, said.
There were further indications that the effects of the Bank’s interest rate hikes were impacting the labour market as the number of vacancies fell by 49,000 on the quarter. This meant vacancies fell for the 18th consecutive quarter, the longest run of quarterly falls ever recorded.
“Job vacancies fell again, with the retail area seeing the biggest fall. However, the overall number of vacancies still remains above its pre-pandemic level,” McKeown said.
The ONS also estimated that the number of payrolled employees dropped by 24,000 between November and December, although it noted this was subject to revision.
The full Labour Force Survey remained absent from the data set after the ONS delayed publishing revised figures last week. The LFS has suffered from falling response rates, which have questions about the accuracy of the dataset.
Alternative estimates, which use administrative data, showed that the unemployment rate remained stable at 4.2 per cent.
Markets will get a further indication on the state of the fight against inflation when figures for December are published on Wednesday.