British Wage Growth Slows, but Interest Rate Cut Unlikely, says ONS
Official data released on Tuesday revealed that wage growth in the UK slowed by the most in almost two years. However, the figures still indicate that pay is rising too fast for the Bank of England (BoE) to consider cutting interest rates in the near future.
According to the Office for National Statistics (ONS), earnings excluding bonuses were 7.3% higher in the three months to October compared to the same period the previous year. This represents a decrease from the growth rate of 7.8% recorded in the three months leading up to September.
The fall in wage growth is the sharpest since the three months to November 2021. Economists polled by Reuters had predicted a slightly higher wage growth of 7.4%.
Darren Morgan, the director of economic statistics at the ONS, noted that while annual growth in earnings remains high, there are signs that wage pressure might be easing overall.
The UK economy is currently experiencing stagnation, with some economists warning of a possible shallow recession in the coming months. However, many employers are struggling to fill vacancies due to the reduced workforce during the pandemic and post-Brexit restrictions on EU workers.
The recent slowdown in regular pay growth is a further decline from the summer peak of 7.9%, which was the highest recorded since the ONS began collecting data in 2001.
Including bonuses, pay growth slowed to 7.2% from 8.0% in the three months to September. The BoE has expressed concerns that pay growth, particularly in the private sector, remains too strong to bring down inflation to its 2% target, despite the stagnating economy.
In the private sector, earnings excluding bonuses dropped to 7.3% in the three months to October, compared with 7.9% in the July-September period.
After raising interest rates 14 times consecutively between December 2021 and August this year, the central bank has since kept rates on hold and is expected to maintain borrowing costs unchanged in Thursday’s announcement.
BoE officials have stated that they are not yet prepared to cut borrowing costs. Although inflation has dropped from 11.1% in October last year, the most recent reading of 4.6% still exceeds the BoE’s 2% target.
Jack Finney, an economist at PwC, commented that the signs of a cooling labor market will provide some reassurance to the Bank of England Monetary Policy Committee. However, he added that the data is not yet sufficient to sway the BoE towards relaxing its tough stance on borrowing costs. Policymakers are expected to emphasize the need for rates to remain in restrictive territory for some time.
Vacancies have also seen a continued decline for the 17th consecutive quarter in the three months to November, with numbers down almost 30% from their peak, although they still remain above pre-pandemic levels.
Following the release of the data, the value of the pound weakened against the US dollar.
In addition to wage growth, Tuesday’s data also revealed that the UK’s unemployment rate remained at 4.2% in the three months to September, while employment rose by 50,000 people. However, the ONS has cautioned that these figures may not be entirely reliable due to changes in their method of measuring the job market through the monthly Labor Force Survey, which is a result of a drop in the number of responses received.
Despite the slowdown in headline pay growth, workers have experienced the largest increase in their incomes after adjusting for consumer price inflation since the three months to September 2021, with a rise of 1.2% on an annual basis.
More detail via Investing.com UK here… ( Image via Investing.com UK )