UK wage growth showed signs of slowing in September, though not as much as expected, which may impact the Bank of England’s (BoE) approach to future interest rate cuts.
In the three months leading up to September, average weekly earnings (excluding bonuses) increased by 4.8% year-on-year, a slight drop from the 4.9% rise in the previous period. When bonuses are included, earnings grew by 4.3%.
The slowdown in wage growth, particularly excluding bonuses, marked the smallest increase in over two years. According to Liz McKeown, Director of Economic Statistics at the Office for National Statistics (ONS), the growth in pay excluding bonuses eased from 4.9% in August to its lowest point in two years.
“Growth in pay excluding bonuses eased again this month to its lowest rate in over two years,” McKeown said. “Pay growth including bonuses increased, but recent figures have been affected by one-off payments made to public sector workers last year.”
Earnings Still Outpacing Inflation
Despite the slowdown, earnings continue to outpace inflation. Adjusted for the Consumer Prices Index (CPI), pay increased by 2.7% in the three months to September, continuing to surpass the rate of inflation.
Unemployment Rate Climbs
The UK’s unemployment rate rose to 4.3% in September, higher than the expected 4.1%. This marked the highest unemployment rate since May, though the ONS cautioned that the estimate could be unreliable due to ongoing low response rates in its jobs survey.
The data suggests that there are underlying pressures in the labor market, despite the Bank of England’s recent interventions. The BoE had already reduced interest rates for the second time this year, bringing them down to 4.75%.
Governor Andrew Bailey recently emphasized the BoE’s cautious approach, particularly regarding the jobs market. “We will continue to take a measured approach in the coming months,” Bailey said, reflecting concerns about job growth and the economy.
Business Costs Rise Amid Budget Changes
In addition to the wage data, the number of job vacancies in the UK fell to 831,000 in the three months to October, down 35,000 from the previous period. This is the lowest level since May 2021, signaling potential difficulties for employers and workers alike.
The UK’s business climate faces additional pressures due to Chancellor Rachel Reeves’ budget, which raised taxes by £40 billion. The decision to increase the national insurance rate for employers to 15% in April, combined with a lower threshold for taxable salaries, could increase costs for businesses.
Alice Haine, Personal Finance Analyst at Bestinvest, warned that businesses may struggle to absorb these higher costs. “This could lead to lower wage increases, job cuts, and even the closure of smaller firms,” she said.
Haine also noted that higher wage bills could be passed onto consumers, raising concerns that inflation might rise again.
Workers Face Growing Challenges
Despite the rising wages, some workers may find it harder to secure new jobs as demand weakens and hiring freezes take hold. The rise in unemployment, coupled with fewer job openings, could further complicate the job market.
Work and Pensions Secretary Liz Kendall acknowledged the challenges workers face. “While it’s encouraging to see real pay growth this month, more needs to be done to improve living standards,” she said.
In response, the government has promised to raise the national living wage starting in April 2024, benefiting over three million low-paid workers. A full-time worker will see a £1,400 increase in their annual salary under the new measures.
Jobless Claims Increase
In October, the number of people claiming jobless benefits climbed by 26,700, up from a revised gain of 10,100 in September. This further highlights the challenges in the labor market as businesses struggle with rising costs and economic uncertainty.
Related topics:
