ONS: Wage growth slows again – good for interest rates but not for resilience

The ONS has released employment and wage data covering the year to May-July: Labour market overview, UK – Office for National Statistics (ons.gov.uk)

Susannah Streeter, head of money and markets, Hargreaves Lansdown: “With wage growth easing off again, it’ll cement expectations that the Bank of England will deliver two interest rate cuts by the end of the year. There will be relief that the once red-hot labour market is well on the way to cooling down. Pay growth including bonuses fell more sharply than expected to 4%, although that’s partly due to one-off payments to public sector workers last year falling out of the figures. Regular pay growth has dropped to 5.1%, continuing to head slowly downwards, but it still might be weeks rather than days before borrowing costs come down.

With the unemployment rate edging down to 4.1% and vacancies still above pre-pandemic levels – indicating underlying demand for workers, there is still likely to be some reticence around the table at the Monetary Policy Committee for a cut next week. Pay growth is still running at more than twice the rate of consumer price growth and there are still niggles of worry that those high wage bills might be passed on, as higher prices for goods and services. With the headline rate of inflation having crept away from target at the last snapshot, some policymakers may still be wary.

Financial markets are pricing in the likelihood that the Bank will keep rates on hold this month at around 72%, although those bets have reduced slightly compared to yesterday. Cuts are looking more likely to be voted for at the meetings in November and December. A lot is likely to be riding on August’s CPI number, due out just a day before the MPC meets.’’

Sarah Coles, head of personal finance, Hargreaves Lansdown: “Wages are still running ahead of inflation, but they’re losing ground. Pay growth is easing off, and inflation is hot on its heels. So while plenty of people may be starting to feel they’re winning financially, they’re not in the clear just yet.

Wages continue to rise ahead of inflation, which is why millions of people are feeling marginally better off at the moment. The HL Savings & Resilience Barometer, shows that real household disposable income is up 2.1% in a year, leaving us with £237 at the end of the month – more than twice the £110 we had before the pandemic. It means we’re able to save 6.8% of our income.

Meanwhile, the jobs picture is looking more positive, with employment up over the quarter and unemployment and inactivity down. Employment and inactivity are still worse than this time last year, but anyone concerned about the future of their job will be relieved to see some strength in the labour market.

However, wage growth is easing, and for the private sector it’s starting to look a little peaky – with regular pay growth at 4.9% – its lowest since spring 2022.

Further down the income spectrum, things are looking even less promising. The HL Savings & Resilience Barometer shows that households on the lowest fifth of incomes have just £4 left at the end of the month, the next quintile has £41, and even those on middle incomes (earning £34,054) have just £169 of wiggle room. It wouldn’t need prices to rise much to tip plenty of households into difficulty.

And the threat of inflation hasn’t gone away just yet. The headline figure has risen to 2.2% and is expected to inch higher as we go into the autumn and energy prices rise again. Already the Barometer shows that just under a third of people still have poor financial resilience, and those on lower incomes, renters, single people and those who are out of work still have a horrible struggle to make ends meet.”

Other figures from the release

• Redundancies fell on the quarter by 0.6 per thousand, to 2.9 per thousand, they’re also lower than a year earlier.
• Vacancies fell by 42,000 in June-August to 857,000 – marking 26 months of consecutive falls. They’re still higher than before the pandemic.