Wage growth slows to two-year low as unemployment falls

UK earnings growth slowed to its lowest for more than two years as the rate of unemployment also surprisingly dropped, according to official figures.

The Office for National Statistics (ONS) revealed that regular wage growth was 5.4% year on year over the three months to June.

However, this slipped from 5.7% in the previous three months and represented the smallest increase since the period to July 2022.

The data found that UK workers saw an average increase of 2.4% once inflation was taken into account.

ONS director of economic statistics Liz McKeown said: “Basic pay growth, while remaining relatively strong, continues to slow.

“Growth in total pay slowed markedly, with last year’s one-off NHS bonuses affecting the comparison.”

The ONS also said the rate of unemployment was 4.2% over the three months to June, dropping from 4.4% over the previous three months.

A consensus of economists had predicted an increase to 4.5% for the quarter.

The statistics body said it reported a broad decrease in unemployment among surveyed Britons over 25.

The data also highlighted a “modest increase” in employment for the quarter, in another positive sign for the UK labour market.

Estimates for the number of payrolled employees in the UK increased by 14,000 between May and June 2024, the ONS said.

Ms McKeown added: “However, the medium-term picture remains somewhat subdued with the employment rate still lower than a year ago and the growth rate in the number of payrolled employees having slowed over the year.”

Another decline in vacancy rates also showed continued pressure in the UK jobs market.

The number of vacancies in the UK decreased by 26,000 to 884,000 for the three months to June.

Chancellor Rachel Reeves said: “Today’s figures show there is more to do in supporting people into employment because if you can work, you should work.

“This will be part of my Budget later in the year where I will be making difficult decisions on spending, welfare and tax to fix the foundations of our economy so we can rebuild Britain and make every part of our country better off.”

Hannah Slaughter, senior economist at the Resolution Foundation, said: “Workers’ pay packets continue to grow coming out of the cost-of-living crisis, but the recent strong real wage growth is running out of steam as productivity stagnates and the jobs market cools.

“While monetary policymakers may be less worried now about pay rises fuelling inflation, they should be concerned about the lack of reliable data on the wider state of the labour market.”

Economists indicated the Bank of England could seek to hold interest rates at 5% this month – after a reduction in August – on the back of continued wage growth, before resuming cuts later in the year.

ING’s James Smith said: “Officials are likely to disregard the latest fall in the unemployment rate owing to data concerns, but sticky wage growth suggests the Bank will keep rates on hold in September before resuming rate cuts at November’s meeting.”