British workers’ pay grew at the weakest pace since 2022 and the jobless rate nudged higher, according to official data on Tuesday which prompted expectations that the Bank of England could bring forward a cut in interest rates.
However, Tuesday’s figures also suggested that a downturn in hiring was beginning to bottom out, potentially reducing the need for more support for the economy from the BoE.
Average weekly earnings excluding bonuses were 4.7% higher in the June-August period than a year earlier, the slowest rise since May 2022 but only slightly weaker than an increase of 4.8% in the three months to July.
The loss of momentum was in line with a Reuters poll forecast.
The Office for National Statistics also said tax data showed payrolled employees rose by 10,000 between July and August – the first significant increase since October last year – before dropping by 10,000 in September, according to preliminary data.
“After a long period of weak hiring activity, there are signs that the falls we have seen in both payroll numbers and vacancies are now levelling off,” ONS director of economic statistics Liz McKeown said.
Strengthening Case For BoE Rate Cuts
The BoE’s Monetary Policy Committee is closely monitoring inflation pressures in Britain’s economy, chief among them wage growth. BoE officials held interest rates at 4% last month.
Investors brought forward slightly their bets on when the BoE will next cut rates after Tuesday’s figures were published, pricing in a 25 basis-point cut in March 2026 rather than April. A second cut was almost fully priced in by the end of next year.
Sterling fell sharply, dropping by more than half of a cent against the U.S. dollar and also weakening against the euro.
Britain’s unemployment rate rose in the three months to August to 4.8% from 4.7% but an ONS official said the survey, which is used to produce the jobless rate, is still subject to improvements.
“Wage growth combined with that unemployment rate rise gives today’s labour market release a dovish tint,” said Rob Wood, chief UK economist at Pantheon Macroeconomics.
In the private sector alone, earnings excluding bonuses rose by 4.4% in the three months to August, the weakest since the end of 2021 and down from 4.7% in the three months to July.
“A slowdown in private sector regular pay growth, to its lowest level since December 2021, will go a little way to reassuring the MPC that the disinflationary slowdown in pay growth is still happening,” said Thomas Pugh, chief economist at RSM UK.
“But given total pay growth remains strong, and inflation is likely to hit 4% in September, it won’t be enough to prompt a rate cut next month.”
Some BoE officials are concerned that Britain’s labour market is still generating inflationary pressures, potentially delaying further rate cuts even as the economy struggles to grow at a faster pace.
BoE policymaker Megan Greene said on Monday that the hit to the jobs market from finance minister Rachel Reeves’ decision to increase employers’ social security bill seemed to have largely run its course. The measure took effect in April.
Job vacancies decreased by 9,000 in the July-September period to 717,000 compared to the previous quarter, the ONS said.
Including bonuses, wages rose by 5.0%, compared with the poll forecast of 4.7%.
(Reporting by Suban Abdulla; editing by William Schomberg and Gareth Jones)
