The latest data from the Office for National Statistics (ONS) revealed that wages are still on the rise, but at a slower pace than the previous month, as the unemployment rate surprisingly fell. According to the ONS, pay, excluding bonuses, grew by 5.4% in the three months leading up to June, down from the 5.8% growth seen in the previous month.
While this figure is still strong, the ONS noted that it is the lowest it has been in two years. When factoring in inflation, wages rose by 3.2%, indicating a slight increase in purchasing power for workers.
Interestingly, the trend of private-sector wage growth surpassing public-sector increases has been reversed. Public sector pay growth was recorded at 6%, while private sector wages were up by 5.2%.
Additionally, the unemployment rate unexpectedly dropped to 4.2% in July, according to the ONS. This was contrary to economists’ forecasts, who predicted a rise to 4.5% from the previous month’s rate of 4.4%. A low unemployment rate can indicate a healthy economy and may put pressure on employers to increase wages.
Despite the strong wage growth, economists do not anticipate any major changes in the expected path for interest rate-setters at the Bank of England. The current expectation is for the interest rate to remain at 5% when the Monetary Policy Committee meets in September. However, upcoming data on economic growth and inflation may influence this decision.
The ONS cautioned against drawing significant conclusions from its labour market figures, as they are subject to revision. The number of people who are out of work but not actively seeking employment remained higher than last year, at 22.2%, but remained consistent with the previous three months. These individuals are classified as “economically inactive.”
The total number of hours worked per week has increased from last year, reaching 1.06 billion hours from April to June 2024. In response to the data, Chancellor Rachel Reeves stated that there is still work to be done in supporting individuals into employment, emphasizing that those who are capable of working should do so.
Reeves also mentioned that upcoming budget decisions will focus on strengthening the foundation of the economy and improving the overall well-being of the country. She noted that difficult decisions will need to be made regarding spending, welfare, and taxes to achieve these goals.
