UK pay growth eased in the three months to August to its slowest pace since the pandemic, making a case for the Bank of England (BoE) to cut interest rates further before the end of the year.
In the three months leading up to August, pay growth excluding bonuses decreased to 4.9%, down from a previous rate of 5.1%. This marks the slowest pace of wage growth since June 2022. When bonuses are included, annual wage growth fell to 3.8%, down from 4% and slightly surpassing economists’ expectations of 3.7%.
This data is closely watched by the financial markets, as it will influence how quickly the Bank can lower UK interest rates.
The jobless rate fell to 4% between June and August, down from the previous figure of 4.1%, the Office for National Statistics (ONS) said.
Employment growth significantly outpaced forecasts, with 373,000 more people employed compared to the previous three months, surpassing the 240,000 estimate.
David Freeman, head of the ONS Labour Market and Household Division, said: “Pay growth slowed again, with last year’s one-off payments made to many public sector workers continuing to affect the figures for total pay. However, earnings continue to rise faster than inflation.
“Over the last three months the number of people on payrolls has stayed broadly flat. The Labour Force Survey shows a different picture and we would advise caution when interpreting changes in these data while we continue to improve survey responses.
“Vacancies have fallen once more, with most industries seeing a fall on the quarter. However, the total still remains a little above its pre-pandemic level.”
The BoE has been closely monitoring wage growth, particularly amid concerns that sustained increases could keep inflationary pressures high, especially in the labour-intensive services sector.
While higher wages provide consumers with greater disposable income, enabling increased spending on goods and services, the recent moderation in pay growth – down from last summer’s peaks of around 8%– indicates that the Bank’s aggressive rate hikes may be effectively curbing inflation.
In August, the BoE cut interest rates for the first time since the pandemic, and market analysts anticipate at least one additional rate cut by the end of the year.
Alice Haine, personal finance expert at Bestinvest, said: “Constantly shifting budget speculation may be creating anxiety for consumers and businesses alike, but there may be some hope ahead if the Bank of England pushes ahead with a second interest rate cut in November.
“A cooling jobs market, slowing pay growth and inflation expected to dip below 2% on Wednesday, certainly raise the chances of further monetary policy loosening when central bank policymakers next meet in November.
“A further 25 basis-point interest rate cut would ease the pain for those burdened by heavy debt and mortgage repayments, but it won’t ease worries about tax hikes and job security – another concern for households trying to balance the books.
Download the Yahoo Finance app, available for Apple and Android.
