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UK wage growth eased slightly in the three months to September as hiring slowed while the number of payrolled employees continued to rise, the Office for National Statistics said on Tuesday.
Average annual growth in regular earnings, excluding bonuses, was 7.7 per cent in the third quarter of the year, down from a peak of 7.9 per cent two months earlier. Annual growth in total pay, which hit a record high of 8.5 per cent in July, had slowed to 7.9 per cent.
The figures corroborate other data suggesting the labour market has softened and wage growth has slowed from record highs in recent months as higher interest rates weigh on economic activity.
The data will reinforce investors’ view that the Bank of England will not need to tighten monetary policy further to win its fight against inflation, even if interest rates remain elevated for an extended period.
James Smith, economist at ING, said with vacancies also falling and private sector wages flat in the latest month, an easing jobs market could be “one of the catalysts” for the BoE to start cutting rates next summer.
Inflation figures due on Wednesday are expected to show annual growth in consumer prices slowing sharply, to less than 5 per cent, as last October’s sharp rise in energy bills falls out of the calculation.
This means wages are now growing faster than living costs, with average total pay up by 1.4 per cent in real terms in the year to September.
Jeremy Hunt, chancellor, said it was “heartening to see inflation falling and real wages growing”, adding that he would set out plans at next week’s Autumn Statement “to get people back into work and deliver growth”.
BoE policymakers have made it clear, however, that they identify strong wage growth as one of the main factors that could lead inflation to remain above their 2 per cent target. They will want to see clear evidence that the labour market has come off the boil before easing policy.
Thomas Pugh, economist at the audit firm RSM UK, said Tuesday’s figures “should satisfy the [Monetary Policy Committee] that it just needs to be patient in order to see wage growth and inflation return to more normal levels”.
However, the committee has also said it is not relying on the official data to give an accurate view of the state of the jobs market.
In recent months, wage growth has persistently looked stronger on the ONS measure than in other business surveys, even though the trend of slowing growth now looks similar.
Meanwhile, the statistics agency is unable to produce its usual estimates for employment, unemployment and economic inactivity because the response rate to the survey on which they are based has dropped so low that its results look unreliable.
Instead, the agency is producing experimental estimates of employment and unemployment, using tax records and benefits claims to adjust its survey findings. The ONS figures showed unemployment held steady at 4.2 per cent in the three months between June and August this year, with employment slightly weaker at 75.7 per cent.
HM Revenue & Customs tax records suggest the number of payrolled employees has continued growing slightly even as the economy stagnates, with a rise of 0.1 per cent, or 33,000 employees, in October following an upwardly revised increase of 32,000 in September.
