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UK wage growth slowed but remained strong in the three months to May, reinforcing doubts over the pace at which the Bank of England will cut interest rates.
The Office for National Statistics on Thursday said annual growth in average weekly earnings, including bonuses, slowed to 5.7 per cent, down from 5.9 per cent in the three months to April.
Excluding bonuses, annual wage growth also slowed to 5.7 per cent, down from 6 per cent in the three months to April and in line with analysts’ expectations. This means regular earnings have grown 2.5 per cent after adjusting for inflation over the same period.
Economists said the modest easing in wage growth was “encouraging” but not enough to reassure the more hawkish members of the monetary policy committee that price pressures were under control.
“Pay packets are proving mighty resilient amid a cooling labour market,” said Greg Thwaites, research director at the Resolution Foundation think-tank, who described rising real wages as “good news for workers coming out of the cost of living crisis” but a concern for the BoE that would “further complicate plans to cut interest rates”.
The pace of private sector pay growth, still buoyed by a bumper rise in the minimum wage, remains stronger than the BoE had expected when it last published forecasts in May.
This comes despite a softening in the labour market over the past year. The ONS said on Thursday that vacancies continued to decline in June, with unemployment of 4.4 per cent unchanged from the previous month but higher than the previous quarter.
The number of payrolled employees rose slightly in June, but on other measures employment has been weaker.
The figures follow a run of recent data that suggests inflationary pressures in the economy could prove more persistent than the Monetary Policy Committee expected when it last met in June.
Last month, the bank held interest rates at 5.25 per cent but said the decision was “finely balanced”, suggesting it was edging closer to the first cut.
But in the past week, official data has revealed a combination of stronger GDP growth, sticky services inflation and ongoing pay pressures that will complicate next month’s interest rate decision, even though headline inflation remained at the BoE’s target of 2 per cent in June.
Sterling and gilt yields were little changed after the data’s release while traders in swaps markets were betting on a 40 per cent chance of the BoE cutting rates in August, compared with 35 per cent before the release.
Ashley Webb, at the consultancy Capital Economics, said the data would not be “enough to offset concerns about the recent persistence of services inflation”, and that the BoE was now more likely to wait until September before making a first move.
Rob Wood, at the consultancy Pantheon Macroeconomics, said slower wage growth might be “enough to greenlight a rate cut . . . in August” but that with other surveys suggesting pay growth remained strong and services inflation still stubbornly high, it would be “a very close call”.
The BoE remains unlikely to put too much weight on a single month’s labour market data, because problems with the ONS’ labour force survey mean figures for unemployment and employment remain unreliable. Policymakers have also raised questions over the wage data, even though these are based on a separate survey.
