UK wage growth slows as job market cools

Real wages are growing at their fastest rate outside of the pandemic in over a decade, prompting worries about ongoing inflationary pressures.

Get the RF response to the latest @ONS labour market data ⤵️ https://t.co/tKuhGURytI pic.twitter.com/g5SV2p4Fs7

— Resolution Foundation (@resfoundation) July 18, 2024

The UK jobs market is showing signs of cooling as wage growth slowed to its lowest level in two years in May. According to the Office for National Statistics (ONS), annual pay growth eased from 5.9% in the three months to April to 5.7% in the three months to May, matching forecasts from City economists. Unemployment remained steady at 4.4% in April, with job vacancies falling by 30,000, particularly in the retail and hospitality sectors. This reflects a broader slowdown in hiring across the economy. Real wage growth, adjusted for cost of living increases, has improved as inflation has declined in recent months.

UK wage growth still too hot to handle for the Bank of England – @GregoryThwaites comments on the latest @ONS labour market statistics https://t.co/tKuhGUR0Ea pic.twitter.com/Bac5fhhM9R

— Resolution Foundation (@resfoundation) July 18, 2024

Total real pay, including bonuses, rose by 3% year-on-year in the three months to May, the highest rate since August 2021.

This is a strange way to report this. In real terms, pay growth is at its highest in 3 years. https://t.co/hrwz1qANFp

— Christopher Snowdon 🇺🇦 (@cjsnowdon) July 18, 2024

Liz McKeown, ONS director of economic statistics, said, “We continue to see signs of cooling in the labour market, with growth in the number of employees on the payroll weakening over the medium term and unemployment gradually increasing.

Wage growth and job market cooling

Earnings growth in cash terms, while still relatively strong, is slowing. However, with inflation falling, real terms wage growth is at its highest in over two and a half years.” Despite recent decreases in economic inactivity, there are still over 500,000 more people out of work compared to last year. Economic inactivity stands at almost 9.4 million, with a significant portion due to long-term sickness. Liz Kendall, the new Work and Pensions Secretary, emphasized the challenge, stating, “The UK stands alone as the only G7 country where the employment rate hasn’t returned to pre-pandemic levels. This is a dire situation, and the government is determined to tackle it.” Financial markets predict that the Bank of England will refrain from cutting interest rates from the current 5.25% at their upcoming meeting on 1 August, waiting until they are more certain that inflation will remain near the government’s 2% target. Ashley Webb, a UK economist at Capital Economics, commented that though wage growth is cooling, the current rate of 5.7% is still inconsistent with the Bank’s 2% inflation target. “As a result, we have revised our forecast for the first interest rate cut from August to September, although it’s a close call,” he said. Several members of the Bank’s Monetary Policy Committee have recently cautioned that ongoing service sector inflation and a tight job market may necessitate a cautious approach to interest rate cuts.