Wage growth in Britain fell in the three months to July to the lowest level in more than two years, while the employment rate rose, data showed on Tuesday. This is likely to keep the Bank of England (BoE) on track to cut interest rates again before the end of the year.
Average weekly earnings in Britain, excluding bonuses, rose 5.1% on a year earlier in the three months to the end of July, according to the Office for National Statistics (ONS), in line with consensus expectations in a Reuters poll of economists.
It was the lowest reading since the three months to June 2022.
Sterling rose slightly against the US dollar after the data was released, which was broadly as expected, before settling back.
After cutting interest rates on August 1, having kept them at a 16-year high of 5.25% for almost a year, the BoE said it would continue to closely monitor wage growth. Investors now see a one in four chance for the BoE to cut interest rates in September.
“The slowdown in wage growth is now clear, even with the impact of public sector bonuses this summer. This should give confidence to the Bank about the future path of interest rates," said Neil Carberry, Chief Executive of trade body the Recruitment and Employment Confederation.
In July, Britain's new Chancellor of the Exchequer, Rachel Reeves, approved a pay rise of at least 5% for millions of public sector workers.
Most economists polled by Reuters expected the next interest rate cut to take place in November, rather than on September 19.
The BoE is more focused on private sector wages, which are expected to decline to 5% at the end of 2024 and 3% at the end of 2025.
Excluding bonuses, private sector wage growth fell to 4.9% in the three months to July – in line with the BoE's forecast of 4.8% for the third quarter as a whole.
Britain's economy added 265,000 jobs in the three months to July, according to the ONS, well above the expectations of economists in a Reuters poll who expected an increase of 123,000.
However, the ONS reiterated warnings about the weaknesses of the Labor Market Survey, which produces employment and unemployment data, but does not cover key pay figures. This methodology is scheduled to be updated in the December issue.
A different measure based on tax data, which some economists say may give a better picture of the health of the labor market although it is likely to be revised, showed the biggest drop in registered employment during August since late 2020.
The unemployment rate in the three months to July fell to 4.1%, slightly down from 4.2% in the three months to June, and the lowest since the three months to January 2024.
The data showed progress in reducing the number of economically inactive adults a priority for Britain's new Labor government which fell by 136,000 in the three months to July compared with the three months to April, the biggest drop since mid-2022.
The number of people who are inactive due to long-term illness also decreased.
The BoE is also examining other inflationary pressures such as labor shortages, which spiked during the COVID-19 pandemic.
The number of unfilled job vacancies fell to a more than 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.
