UK Regular Pay grows at Slowest Pace in Two Years, Pointing to Lower Inflation

Average weekly earnings, excluding bonuses, were 4.8 per cent higher in the three months to the end of September than a year earlier, down from 4.9 per cent the month before and nearly 8 per cent a year earlier, the Office for National Statistics said on Tuesday.

The third-quarter data was the weakest reading since the three months to June 2022.

Sterling slid to its lowest level against the US dollar since mid-August after the numbers were released, dropping to just above $1.28.

Economists polled by Reuters had mostly forecast regular wage growth of 4.7 per cent, but the figure was in line with the BoE’s forecast for the third quarter, published last week.

The BoE cut interest rates last Thursday for only the second time since 2020 and said future reductions were likely to be gradual as it predicted the British government’s first budget would lead to higher inflation and economic growth.

“The easing in private sector regular pay suggests that the Bank of England will continue to cut interest rates gradually,” said Paul Dales, chief UK economist at consultancy Capital Economics.

“We continue to think the Bank will skip the December meeting and cut rates at the following February meeting,” he added.

In its Oct. 30 budget, the government said it would increase the rate of social security contributions paid by employers by 1.2 percentage points, adding 25 billion pounds ($32 billion) a year to their pay bills.

The BoE said last week this and other budget measures would probably contribute to a 0.5 percentage point rise in the rate of inflation, as well as hurting wages, employment and profits, although the exact impact was hard to forecast.

Private sector regular pay growth – a key measure of inflation pressure for the BoE – was also 4.8 per cent higher in the three months to September, as the central bank had expected.

In a further sign of a loosening labour market, the number of job vacancies fell to its lowest level since May 2021.

Adjusting for consumer price inflation, regular pay grew by 2.7 per cent in quarterly terms, the same as the three months to August but the joint-weakest reading since the three months to March.

Liz Kendall, the work and pensions secretary, said the growth in real wages was encouraging but that more needed to be done to improve living standards.

DATA DIFFICULTIES

Britain’s jobless rate rose to a four-month high of 4.3 per cent in the three months to September from 4.1 per cent, while the number of employed people rose by 210,000, according to data from the Labour Force Survey which ONS statisticians say should be treated with caution.

Inactivity in the labour market, a big concern for the government, fell 0.4 percentage points to a five-month low of 21.8 per cent – the largest quarterly drop since 2012 if taken at face value.

The BoE last week repeated its message that shortcomings in the LFS – which measures employment, unemployment and inactivity, but not wages or vacancies – had made its job much harder. Governor Andrew Bailey said it was difficult to tell whether Britain’s unusual rise in inactivity was real or not.

The ONS will publish revised labour market data based on fresh population estimates on Dec. 3.

Based on other economic indicators, the central bank estimated that underlying employment has grown at a quarterly rate of around 0.2 per cent through this year, including the third quarter.

The BoE’s indicator-based model suggests the unemployment rate has remained steady at around 4.2 per cent in recent months, unlike the ONS measure which has oscillated in recent months.

Source: Reuters