LONDON, Sept 10 (Askume) – Data on Tuesday showed British pay growth fell to its lowest in two years and employment growth slowed in the three months to July, prompting the Bank of England to cut this year’s growth forecast and another interest rate cut is likely.
The Office for National Statistics said average weekly earnings in the UK, excluding bonuses, were 5.1% higher than a year earlier in the three months to the end of July, according to a Askume survey of economists.
This is the lowest reading in the three months till June 2022.
Based on these data, GBP/USD rose briefly, roughly in line with expectations, but then retreated.
The Bank of England kept interest rates at a 16-year high of 5.25% and cut interest rates on August 1 after nearly a year, saying it would continue to pay close attention to wage growth. Investors see a roughly one in four chance of the Bank of England cutting interest rates in September.
Neil Carberry, chief executive of trade body the Federation for Recruitment and Employment, said: “Despite the impact of public sector stimulus this summer, the slowdown in wages is now quite clear. This will give the central bank confidence on the future path of interest rates.”
In July, Britain’s new finance minister Rachel Reeves approved a pay rise of at least 5% for millions of public sector workers.
Most economists polled by Askume expect the next rate cut to come in November rather than Sept. 19.
The Bank of England is paying more attention to private sector pay, which is expected to slow to 5% by the end of 2024 and 3% by the end of 2025.
Excluding bonuses, private sector pay growth slowed to 4.9% in the three months to July, which is expected to meet the Bank of England’s third quarter forecast of 4.8%.
Increase in employment
The Office for National Statistics said the UK economy added 265,000 jobs in the three months to July, more than economists expected in a Askume poll which saw a rise of 123,000 jobs.
But the ONS reiterated its warnings about flaws in the labour force survey, which produces employment and unemployment data but not basic pay data. This feature will be updated in the December release.
Some economists said a separate employment measure based on tax data may provide a better picture of the health of the labor market, and though the measure is subject to revision, it showed that employment levels in August were at the lowest level since late 2020. Horizontal salaried jobs experienced the biggest declines.
The unemployment rate fell to 4.1% in the three months to July, slightly down from 4.2% in the three months to June and the lowest level since the three months until January 2024.
The figures show progress is being made in reducing the number of economically inactive people of working age, a priority for Britain’s new Labour government, with the number falling by 136,000 people in the three months to July, the biggest ever.
The number of people who are inactive due to chronic conditions has also decreased.
The Bank of England is also monitoring other inflationary pressures, such as labor shortages that have intensified during the COVID-19 pandemic.
The number of vacancies fell to a three-year low of 857,000 in the three months to July, down from 1.3 million in mid-2022 but still higher than at the start of 2020.
