UK wages grow at 7.8% despite slowing jobs market
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UK wages continued growing at the fastest pace on record in the three months to July, despite a weaker jobs market in which unemployment has risen and hiring slowed, official data showed on Tuesday.
The Office for National Statistics said annual growth in average pay, excluding bonuses, remained at 7.8 per cent — the highest rate since comparable records began in 2001.
Total pay grew by 8.5 per cent, boosted by one-off payments to NHS workers and civil servants following pay deals to end strike action.
This means average wages are now growing faster than consumer prices, which rose by 6.8 per cent in the year to July — a development that will bring welcome relief for households, but is likely to reinforce the Bank of England’s concerns over the persistence of inflationary pressures.
“The further rise in wage growth will only add to the Bank of England’s unease,” said Ashley Webb, economist at the consultancy Capital Economics, which expects monetary policymakers to raise interest rates by a further 0.25 percentage points to 5.5 per cent when they meet next week.
The 8.5 per cent increase in total pay is also likely to serve as the benchmark for next year’s increase in the state pension, because of ministers’ commitment to maintain the “triple lock” that ensures payments rise each year in line with the highest out of inflation, average earnings or 2.5 per cent.
Jonathan Cribb, associate director at the Institute for Fiscal Studies think-tank, said this would add £2bn to spending on the state pension in 2024-25, relative to the Office for Budget Responsibility’s March forecasts, with the policy creating “heightened uncertainty for individuals planning their retirement” and putting the sustainability of the state pension system at risk.
Rate-setters are hoping that wage growth will soon slacken as the labour market cools, with both surveys and official data now pointing to mounting job losses and a less frenetic pace of hiring.
The ONS said the unemployment rate rose to 4.3 per cent in the three months to July, up from 4.2 per cent last month and above the BoE’s latest forecast of 4.1 per cent for the third quarter. Employment also fell more sharply than analysts had expected, down by 207,000 from the previous three-month period, following a drop of 66,000 in the previous month.
Economic inactivity also picked up again, rising by 0.1 percentage points on the quarter to 21.1 per cent.
“Too many people are outside the labour force entirely, but those that are looking for work are finding it harder to get it,” said Tony Wilson, director of the Institute for Employment Studies, a consultancy. He noted that the drop in employment was the sharpest since 2020, with a big, unexplained increase in the number of young people who were neither working nor studying.
Samuel Tombs, economist at the consultancy Pantheon Macroeconomics, noted that with vacancies now below 1mn, the ratio of unemployed people to vacant jobs — a measure of labour market slack — had almost returned to its average level in 2019, before the disruption of the pandemic.
Persistently high wage growth “probably means the Monetary Policy Committee can’t stop raising bank rate at this month’s meeting, but the end of the tightening cycle is not far off now”, Tombs said.
The pound edged up 0.06 per cent in early trading to $1.2515. Swaps markets are pricing in a probability of almost 80 per cent that the MPC will lift rates by 0.25 percentage points to 5.5 per cent on September 21.
Paul Nowak, general secretary of the Trades Union Congress, said the figures showed the UK economy was “in the danger zone”, with unemployment up by nearly 250,000 over the past year, and real wages still falling in many sectors. “The government is in denial,” he added.
But chancellor Jeremy Hunt said it was “heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers”.
“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation,” he added.
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UK wages continued growing at the fastest pace on record in the three months to July, despite a weaker jobs market in which unemployment has risen and hiring slowed, official data showed on Tuesday.The Office for National Statistics said annual growth in average pay, excluding bonuses, remained at 7.8 per cent — the highest rate since comparable records began in 2001. Total pay grew by 8.5 per cent, boosted by one-off payments to NHS workers and civil servants following pay deals to end strike action.This means average wages are now growing faster than consumer prices, which rose by 6.8 per cent in the year to July — a development that will bring welcome relief for households, but is likely to reinforce the Bank of England’s concerns over the persistence of inflationary pressures. “The further rise in wage growth will only add to the Bank of England’s unease,” said Ashley Webb, economist at the consultancy Capital Economics, which expects monetary policymakers to raise interest rates by a further 0.25 percentage points to 5.5 per cent when they meet next week.The 8.5 per cent increase in total pay is also likely to serve as the benchmark for next year’s increase in the state pension, because of ministers’ commitment to maintain the “triple lock” that ensures payments rise each year in line with the highest out of inflation, average earnings or 2.5 per cent.Jonathan Cribb, associate director at the Institute for Fiscal Studies think-tank, said this would add £2bn to spending on the state pension in 2024-25, relative to the Office for Budget Responsibility’s March forecasts, with the policy creating “heightened uncertainty for individuals planning their retirement” and putting the sustainability of the state pension system at risk. Rate-setters are hoping that wage growth will soon slacken as the labour market cools, with both surveys and official data now pointing to mounting job losses and a less frenetic pace of hiring.The ONS said the unemployment rate rose to 4.3 per cent in the three months to July, up from 4.2 per cent last month and above the BoE’s latest forecast of 4.1 per cent for the third quarter. Employment also fell more sharply than analysts had expected, down by 207,000 from the previous three-month period, following a drop of 66,000 in the previous month.Economic inactivity also picked up again, rising by 0.1 percentage points on the quarter to 21.1 per cent. “Too many people are outside the labour force entirely, but those that are looking for work are finding it harder to get it,” said Tony Wilson, director of the Institute for Employment Studies, a consultancy. He noted that the drop in employment was the sharpest since 2020, with a big, unexplained increase in the number of young people who were neither working nor studying. Samuel Tombs, economist at the consultancy Pantheon Macroeconomics, noted that with vacancies now below 1mn, the ratio of unemployed people to vacant jobs — a measure of labour market slack — had almost returned to its average level in 2019, before the disruption of the pandemic.Persistently high wage growth “probably means the Monetary Policy Committee can’t stop raising bank rate at this month’s meeting, but the end of the tightening cycle is not far off now”, Tombs said.
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The pound edged up 0.06 per cent in early trading to $1.2515. Swaps markets are pricing in a probability of almost 80 per cent that the MPC will lift rates by 0.25 percentage points to 5.5 per cent on September 21. Paul Nowak, general secretary of the Trades Union Congress, said the figures showed the UK economy was “in the danger zone”, with unemployment up by nearly 250,000 over the past year, and real wages still falling in many sectors. “The government is in denial,” he added.But chancellor Jeremy Hunt said it was “heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers”. “Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation,” he added.
https://www.ft.com/content/765711d1-b00d-407a-b76b-32590b67eae7 UK wages grow at 7.8% despite slowing jobs market
