UK Wages Remain Strong Despite Slowing Labour Market Trends
The Bank of England is expected to hold off on cutting interest rates next week due to wage growth outpacing inflation.
UK wage growth has remained strong, but economists anticipate a gradual slowdown as the labor market cools down in the coming months.
For the three months leading up to April, total earnings stayed at 5.9 percent, the same as the previous quarter.
Excluding bonuses, the figure was 6 percent, slightly lower than the projected 6.1 percent, as reported by the Office of National Statistics (ONS).
In terms of sectors, the annual average regular earnings growth remained robust in the public sector at 6.4 percent.
Conversely, the private sector, closely monitored by the Bank of England, experienced a growth of 5.8 percent. This marks the slowest growth in two years for average weekly earnings in the private sector, despite the National Living Wage increasing by 9.8 percent to £11.44.
During the period from February to April, the finance and business sectors saw the highest annual regular pay growth at 6.9 percent. The construction sector recorded the lowest growth at 2.9 percent.
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In April, inflation reached its lowest level in nearly three years at 2.3 percent, driven by decreasing gas and electricity prices.
Despite expectations of a larger drop to 2.1 percent, Prime Minister Rishi Sunak referred to it as a significant moment for the economy.
With falling inflation, real income gains for employees stood at 2.2 percent in the three months leading up to April, the highest level since October 2021. Adjusted for inflation, the annual pay growth in real terms was 2.3 percent—a level not seen since 2015, except during the pandemic.
Hannah Slaughter, a senior economist at Resolution Foundation think tank, stated that British workers will be pleased to see a return to real pay growth.
Labor Market
The ONS also observed signs of a cooling labor market, with a slight decrease in vacancies recorded from March to May, down by 1.3 percent from the previous quarter.
Nine out of 18 industry sectors reported fewer vacancies, with wholesale and retail trade experiencing the largest decrease. Additionally, the rate of unemployed people per vacancy stood at 1.7 from February to April, slightly up from 1.5 in the previous quarter.
According to the National Institute of Economic and Social Research (NIESR), as unemployment increases relative to vacancies, wage pressures are expected to ease gradually in the upcoming months as the labor market cools down.
Further indications of a cooling job market were provided by HM Revenue & Customs, reporting a decline of 3,000 UK workers on payrolls to 30.3 million in May, subject to revision.
Bank of England
The persistence of wage growth raises concerns about “stickier inflation,” NIESR economist Monica Michail explained.
The Bank of England is set to announce its decision on interest rates next week following the Monetary Policy Committee (MPC) meeting on June 20.
Ms. Slaughter believes that the BoE will have concerns regarding the strong nominal pay growth of 6 percent.
In discussing the long-term economic outlook, Ms. Slaughter mentioned that it continues to be one of stagnation.
PA Media contributed to this report.
