UK wage growth rose above inflation for the first time in two years, rising 7.8% between June and August.
It marks an easing from the previous rolling three-month period, with pay increases dropping a single percentage point from the 7.9% between May and July.
Meanwhile, job vacancies in the July-September period stood at 988,000, down 43,000 on the previous three months and a drop of 256,000 from a year ago, albeit 187,000 above pre-Covid levels.
Victoria Scholar, Interactive Investor’s head of investment, said: “Although today’s figures don’t paint a full picture of the state of the UK labour market, the fall in job vacancies and slight drop in wage growth suggests that signs of slack continue to emerge, highlighting the fragility of the economy as elevated inflation and the Bank of England’s stream of rate hikes take their toll on the jobs market.
“With vacancies continuing to decline, businesses are clearly becoming much more cautious about their hiring plans, less willing to take on the fixed costs of full-time staff as a time of economic uncertainty. At the same time, wage growth remains strong by historic standards, something the central bank will be paying close attention to in terms of its battle against inflation.”
More reason for BoE to pause
With the Bank of England due to meet on 2 November to decide its next course of action on monetary policy, industry commentators have pondered the impact today’s data drop could have.
Emma Mogford, Premier Miton Monthly Income fund manager, commented: “With the number of employees on payroll falling and wage inflation below expectations, this gives the BoE more reason to pause its interest rate increases. If we are at peak rates, then a more stable outlook for interest rates could help the economy and stock market.”
Richard Carter, head of fixed interest research at Quilter Cheviot said: “With the BoE last month choosing to hold the interest rate at 5.25% in the face of falling inflation, this data, alongside next week’s delayed figures, will play a significant role in its rate decision on the 2nd November. However, the worrying conflict in the Middle East may mean that inflation returns to an upward trajectory making future decisions on rates that much harder.
“Despite the current pause in rate rises, businesses will still be finding the going very tough. As a result of higher interest rates it may lead to a plateauing of wage growth, given that businesses will not have the surplus funds to sanction significant salary increases. Furthermore, with the continued financial uncertainty, employees might tread cautiously when it comes to negotiating for pay hikes for fear of becoming too expensive to keep on.”
“Similarly, businesses could opt to stay lean and not take on too many more staff with future economic uncertainty still prevalent reducing the number of roles available”, he added.
“Therefore, despite the positive momentum in wages over the past year, a deceleration seems likely in the near future. Presently, the ONS data indicates growth in employees’ average total compensation (inclusive of bonuses) stood at 8.1%, and the uptick in regular pay (exclusive of bonuses) remained steady at 7.8% in June to August 2023.
“All eyes will be on next week’s data and not only will the unemployment rate be closely watched, but it is also hoped that the percentage of those economically inactive will have seen a further reduction. If this is the case, it would come as a real positive for the government as it continues to try and help encourage people back to work. However, in light of the cost-of-living crisis, this may end up happening naturally in the coming months as belts have to tighten.”