According to recent official figures, wage growth has slowed in the UK, potentially indicating a positive outlook for those hoping for a decrease in borrowing costs. However, despite this slowdown, wages have still risen at a faster rate than the overall rate of price increases.
In the three months leading up to May, the Office for National Statistics (ONS) reported an annual increase of 5.7% in earnings. During the same period, inflation stood at 2%. As a result, the ONS has stated that real wages, which take inflation into account, have grown at the fastest rate in almost three years, with a growth of 3.2%.
These figures are in line with forecasts from economists and the Bank of England, and could potentially influence the Bank’s decision to cut interest rates in August. However, the Bank may also take into consideration the inflation data released on Wednesday, which showed that certain areas of the economy are still experiencing stubbornly high prices. The decision for the next interest rate change is currently uncertain, but the latest ONS figures may increase the likelihood of a rate cut.
The topic of wages is of particular interest to the Bank, as recent employment data from the ONS has been unreliable due to low participation in surveys. The ONS has made changes to their methods for calculating labour market numbers, which may have an impact on future data. Additionally, the 9.8% increase in the minimum wage, which took effect in April, likely had an influence on the May figures as well.
The unemployment rate remained unchanged at 4.4%, and while there were fewer job opportunities available, there were still more than before the COVID-19 pandemic began in 2019. According to the ONS, there are signs of a cooling labour market, with a decrease in the number of employees on payroll and a gradual increase in unemployment. Additionally, there has been a decline in job vacancies, particularly in the retail and hospitality sectors. While these numbers have been falling for the past two years, they still remain higher than pre-pandemic levels.
The ONS also reported that the percentage of economically inactive individuals, those not employed and not seeking employment, was 22.1% of the population aged 16 to 64. This group typically consists of students and retirees, but since the pandemic, the number has increased due to higher levels of long-term sickness. The ONS noted that the current economic inactivity rate is higher than estimates from a year ago, with the Department for Work and Pensions reporting 9.4 million economically inactive individuals.
