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UK wage growth steadied in the three months to September as hiring stalled, according to official data that confirms the Bank of England’s view that pressures in the labour market are slowly easing.
Annual growth in average weekly earnings in the private sector was 4.8 per cent in the three months to September, unchanged from the three-month period to August, the Office for National Statistics said on Tuesday.
The figure was the lowest since the winter of 2021-22 and was in line with the forecasts the central bank published last week, when it cut interest rates to 4.75 per cent and said further easing would be “gradual”.
Following the release of the data, sterling dropped 0.5 per cent to $1.28.
But Huw Pill, the BoE’s chief economist, told a conference in London later on Tuesday morning that the data showed pay growth remained “quite sticky, at elevated levels, and levels that, given the outlook for productivity growth in the UK, are hard to reconcile with the UK inflation target”.
He added: “We have seen a substantial disinflation in the UK economy, and that has allowed the monetary policy restriction to be reduced . . . That does not mean it is job done. From our perspective, there remain some underlying inflationary pressures in the UK economy.”
Economists still believe pay growth has slowed enough for the BoE to cut interest rates again next year, after a likely pause at its December meeting.
Gabriella Higgins, economist at Axa Investment Managers, said the figures suggested that “the labour market will ease off enough to enable the bank to continue its gradual pace of cuts over the coming year or so”.
In the next few months, however, headline wage growth will be boosted by recent public sector pay deals, which are still feeding into the ONS data.
Public sector wage growth, excluding bonuses, was running above the private sector rate at 4.7 per cent in the three months to September, down from 5.2 per cent a month earlier.
The ONS also published figures drawn from tax records showing payroll employment fell by 9,000 between August and September, with provisional figures for October pointing to a further decline of 5,000.
Meanwhile vacancies fell by 35,000 on the quarter to 831,000 in August to October. Job openings were scarcer than a year ago in almost every sector — except for real estate and construction, where job prospects have improved as lower interest rates revive the housing market.
Ben Harrison, director of the Work Foundation at Lancaster University, said that as Budget changes to payroll taxes and the minimum wage kick in “we could see further cooling of the jobs market as some employers will lack confidence to employ more people as their overheads rise”.
Separate figures based on the ONS’s labour force survey showed a rise in unemployment to 4.3 per cent in the three months to September, from 4 per cent just a month earlier. The claimant count, which reflects claims for unemployment benefits, also rose by 27,600 in October, following a smaller increase the previous month, to stand at 1.806mn.
However, both these measures are unreliable at the moment as the ONS has been struggling to repair the LFS after a sharp decline in responses, and because of changes in the rules for benefits claims.
Rob Wood, at the consultancy Pantheon Macroeconomics, said the LFS-based data was “so unreliable . . . that they seriously complicate the monetary policy committee’s job of trying to set interest rates”.
But he said the broad picture was that “the unemployment rate continues to gradually trend up, jobs growth slowed ahead of the Budget, and wage growth is slowing only gradually”. He added: “That is enough to keep the [Monetary Policy Committee] gradually cutting interest rates.”