The growth in employee annual earnings has fallen below 5% for the first time in more than two years, closing the gap between wages and inflation and increasing the likelihood of a further cut to interest rates.
Staff pay, excluding bonuses, rose by 4.9% in the three months to August compared with the same period a year earlier, down from 5.1% in the three months to July, according to the Office for National Statistics (ONS). The ONS said annual growth in total earnings including bonuses was 3.8% in the three months to August, down from 4.1% for the equivalent figure in July.
The fall is likely to be seen as a further milestone in the return to normal levels of earnings growth by the Bank of England and a spur to bring down interest rates at a faster pace. The Bank’s next decision is due on Thursday 7 November, just over a week after the Chancellor will become the first woman to deliver a budget (Wednesday 30 October).
The last time annual pay growth fell below 5% was in June 2022, when the inflation rate had risen to 9.4% in response to rising energy and food prices. The consumer prices index has tracked downwards steadily over the past two years to hit 2% in May before a modest rise during the summer to 2.2% in August.
The unemployment rate – which covers the whole of the UK – dropped slightly to 4% in the June to August period, while vacancies fell almost back to the long-term average experienced before the onset of the Covid-19 pandemic.
Jake Finney, an economist at PwC UK, said: “The softening in demand for labour is starting to weigh on wage growth. A quarter-point cut in November still seems most likely, given signs that wage growth is moderating and increasingly dovish commentary from Bank of England governor Andrew Bailey.”
The trades union body, the TUC, said the fall in the unemployment rate disguised a worsening situation for young people. Youth unemployment rose to 12.8%, up 0.8 percentage points on the quarter. The number of young people in long-term unemployment has increased by 30,600 (or 53%) over the past year. Is this because those making the hiring decisions are more likely to ascribe to the notion that those in Generation Z are lazy and therefore not suitable to their institutions?
The work and pensions secretary, Liz Kendall, said she was committed to doing more to help people back into jobs (although one could argue that goes to the very heart of her whole job and is therefore not newsworthy): “Millions of people are locked out of work due to long-term sickness. This is not good for them, for our economy or for the taxpayer.”
But the big question over all this is “How will the rise in employer’s National Insurance (which is surely a shoe-in for budget day) affect wages and the decision to employ people?”.
