Rosy glow for jobs, but slower wage rises not enough to warm hearts of economists
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
What this means for rates
‘’Red hot wage growth has been doused with another bucket of cold water, but there are still lingering concerns it could ignite again, due to a small dip in unemployment. It still seems highly likely there won’t be another rate cut in September.
Annual wages including bonuses grew 4.5%, a significant fall from 5.7% and a larger drop than expected, partly due to NHS bonuses from last year. Regular pay growth came in stronger, at 5.4% in the period to June, falling from 5.7%.
The pound has risen against the dollar, partly as traders shifted their bets slightly on just how long it will be before there’s another interest rate cut. The belt to constrain growth is likely to stay in place in September, because some policymakers are still worried about the potential for wage growth to bulge again. They’re concerned that if it’s not held back, it could prompt inflation to run away again if firms pass on higher wage costs to prices charged to customers.
Instead of rising as expected, the unemployment rate was down over the year and the quarter, to 4.2%. With vacancies still 11% higher than in 2020, employees still have considerable bargaining power.
The CPI reading for July, set to be released tomorrow, is expected to show that headline inflation has veered away from target again, with further rises expected before the end of the year. It seems clear that the fight against insidious inflation has not yet been won, a point hammered home by decision maker Catherine Mann this week. At least one further rate cut, possibly two, is still expected by the end of the year, but caution is expected to be the name of the game, especially as the unemployment figures have been criticised as being unreliable.’’
Sarah Coles, head of personal finance, Hargreaves Lansdown:
What this means for you
“The pressure that has squeezed the life out of all of us for the past couple of years is continuing to ease, as wages grow faster than inflation again. Meanwhile, the sun has been shining on the employment landscape, so more people are in work and able to enjoy these wage rises.
This isn’t a massive transformation in employment fortunes, but the steady stream of people leaving the revolving doors with cardboard boxes in their hands has been replaced by the gradual arrival of more people in new suits and shiny shoes.
For those in work, there’s more good news, because wages continue to rise ahead of inflation – up 1.6% including bonuses and 2.4% excluding them. They’re not running quite so hot as they were, and we’re likely to have to contend with slightly higher inflation in the coming months. However, the fact real wages are still growing means more people have escaped a cost-of-living crisis and are coming up for air.
This is reflected in the HL Savings & Resilience Barometer, which shows that real household disposable income is up 2.1% in a year, leaving us with £235 at the end of the month – more than twice the £110 we had before the pandemic. This has helped almost two thirds of people build enough of a cash cushion to be resilient – up from less than a half before the pandemic.
There’s plenty to celebrate in these figures, but for millions of people, it’s all a bit premature. For those on lower incomes, the cost-of-living crisis still hasn’t loosened its grip, and it’s a struggle to make it to the end of the month. 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 rose on the quarter by 0.7 per thousand, to 3.8 per thousand, but they’re lower than a year earlier.
- Vacancies fell to 884,000 in May-July – marking 25 months of consecutive falls. They’re still higher than before the pandemic.
- Pay growth for the private sector was 5.4% – its lowest since May 2022. For the public sector it was 6% – down from 6.4% a month earlier.
