12 December 2023

Pay growth slows as jobs market clouds gather

12 December 2023

Wage growth has slowed at the fastest pace for two years as Britain’s jobs market shows further signs of weakening.

The Office for National Statistics (ONS) said private sector regular earnings, excluding bonuses, rose by 7.3% in the three months to October, down from 7.8% in the previous three months.

Pay growth is now steadily falling from recent peaks, having hit a record high of 7.9% in the summer, although it is still rising in real terms thanks to recent steep falls in inflation.

Earnings growth outstripped inflation at the fastest pace for more than two years, up 1.2% after taking Consumer Prices Index inflation (CPI) into account, according to the latest official figures.

In further signs that the UK jobs sector is cooling, the ONS said the number of vacancies fell for the 17th month in a row, down by 45,000 in the three months to November to 949,000 – the longest period of decline on record.

ONS director of economic statistics Darren Morgan said: “This is now the longest period of decline on record, longer than in the immediate aftermath of the 2008 downturn.”

But he added the number of vacancies “still remains well above its pre-pandemic level”.

Chancellor Jeremy Hunt said it was “positive to see inflation continue to fall and real wages growing”.

But the data suggests the jobs market is stalling in the face of a more uncertain economic backdrop, with firms not hiking pay as fast, and fewer vacancies there to be filled.

The slowdown in wage growth is seen reinforcing the case for the Bank of England to hold off from raising interest rates further.

Policymakers are widely expected to keep rates unchanged at 5.25% when they next decide on Thursday, with many forecasting the Bank may look to start cutting rates in 2024.

The Bank is watching wage growth intently, with the recent record highs having been a cause for concern in its battle to bring sky-high inflation back down to the 2% target.

Louise Murphy, economist at the Resolution Foundation think tank, said: “The UK’s historically high level of pay growth over the summer has been a major concern for policymakers, as it risks keeping inflation higher for longer for everyone.

“But just as price pressure fell back sharply in October, so too has pay growth, as the big rises from earlier in the year fall out of the data.

“This will reassure Bank of England policymakers seeking to bring inflation down.”

While inflation has now eased to 4.6%, it still remains more than double the Bank’s target, while pay growth is still historically high.

Martin Beck, chief economic adviser to the EY Item Club, said this is likely to see the Bank “stick with its ‘high-for-longer’ message for a little while yet”, with governor Andrew Bailey having recently been quick to dismiss the prospect of imminent rate cuts.

Experimental data from the ONS estimated that the rate of unemployment remained unchanged at 4.2% in the three months to October.

But more real-time figures showed the number of workers on UK payrolls fell by 13,000 in November to 30.2 million.

Samuel Tombs at Pantheon Macroeconomics said the unemployment rate is also set to “drift higher over the coming months”.

Current jobs data is being collated using extra data sources to estimate the figure due to low responses to the labour force survey.

Mr Tombs said when revised survey data is available from next spring, he expects the rate of unemployment to rise to around 4.8%, “which would further strengthen the case for the MPC to begin to cut Bank Rate at or shortly after its meeting in early May”.

The ONS data also showed there were 131,000 working days lost due to industrial action in October, with 49,000 workers were involved in strikes, though this was the lowest number for four months.

According to the latest experimental figures, the rate of UK employment remained unchanged at 75.7% in the three months to October.

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