UK earnings growth has slowed down to its lowest level in over two years, while the unemployment rate has surprisingly dropped, according to recent official figures. The data revealed that the rate of unemployment fell to 4.2% over the three months to June, down from 4.4% in the previous quarter. This decline was unexpected, as economists had predicted an increase to 4.5% for the quarter.
Despite the decrease in unemployment, UK workers only saw an average wage increase of 2.4% after accounting for inflation. This is the smallest increase since July 2022. The Office for National Statistics (ONS) reported that basic pay growth, although still relatively strong, is slowing down. The growth in total pay also slowed notably, partially due to one-off NHS bonuses from the previous year affecting the comparison.
Additionally, the data highlighted a modest increase in employment for the quarter. Estimates for the number of payrolled employees in the UK increased by 14,000 between May and June 2024. However, the ONS noted that the employment rate is still lower than a year ago, indicating a somewhat subdued medium-term outlook for the UK labor market.
Furthermore, there was a decline in vacancy rates, with the number of job vacancies decreasing by 26,000 to 884,000 for the three months to June. This ongoing pressure in the UK job market was reflected in Chancellor Rachel Reeves’ statement, emphasizing the importance of supporting people in finding employment.
Hannah Slaughter, a senior economist at the Resolution Foundation, expressed concerns about the stagnation of productivity and the cooling of the job market impacting real wage growth. While workers’ pay packets have been growing amid the cost-of-living crisis, the recent strong real wage growth is showing signs of slowing down.
Looking ahead, economists suggested that the Bank of England may maintain interest rates at 5% this month, following a reduction in August. The sticky wage growth could influence the Bank’s decision to hold rates steady in September before potentially resuming rate cuts later in the year. ING’s James Smith highlighted the importance of reliable data on the state of the labor market for policymakers to make informed decisions regarding interest rates.
In conclusion, the latest figures on wage growth and unemployment in the UK indicate a complex economic landscape, with various factors influencing the labor market. While there are positive signs such as a decrease in unemployment and a slight increase in employment, concerns about wage growth and productivity persist. Policymakers will need to carefully navigate these challenges to ensure the stability and growth of the UK economy.
