Wage growth beats expectations as inflation beds into UK economy
Wage growth came in comfortably above economists’ expectations in the three months to September, suggesting inflationary pressures remain strong.
According to figures from the Office for National Statistics (ONS), average wage growth including bonuses was 7.9 per cent between July and September, down from last month’s upwardly revised figure of 8.2 per cent.
Economists had expected wage growth including bonuses to fall to 7.4 per cent although the Bank of England expected it to be roughly flat.
Excluding bonuses, wage growth fell to 7.7 per cent, down marginally from 7.8 per cent. Although this was in line with expectations the ONS noted it was still among the highest annual growth rates since records began in 2001.
“This total annual growth rate is affected by the Civil Service one-off payments made in July and August 2023,” the ONS said.
Taking inflation into account, wages rose by 1.4 per cent meaning real pay was growing at its fastest rate for two years.
“It’s heartening to see inflation falling and real wages growing, keeping more money in people’s pockets,” Chancellor Jeremy Hunt said.
The Bank of England has highlighted wage growth as a crucial indicator of the persistence of domestic inflation.
Although policymakers have seemed increasingly sceptical of the reliability of the ONS’s estimates, surveys suggest wage growth is still running far too hot to be consistent with inflation coming down to two per cent.
In its most recent Monetary Policy Report, the Bank of England suggested that unemployment will have to go higher than it previously thought in order to bring down wage growth.
The Bank itself acknowledged that “there is significant uncertainty about the rate of unemployment consistent with meeting the two per cent inflation target in the medium term”.
However, falling response rates to its flagship Labour Force Survey has forced the ONS to publish “experimental” figures on the level of unemployment. This makes it more difficult for the Bank of England to assess how its rate hikes are impacting the economy.
The ONS estimated that the unemployment rate remained “largely unchanged” on the previous quarter at 4.2 per cent.
“Our labour market figures show a largely unchanged picture, with the proportions of people who are employed, unemployed or who are neither working nor looking for a job all little changed on the previous quarter,” ONS director of economic statistics Darren Morgan said.
Despite this there were some signs that signs of slack continue to emerge. The estimated number of vacancies fell by 58,000 in the quarter, the 16th consecutive fall.
“There are clear signs of a cooling off in the labour market, with vacancies continuing to trend downwards and unemployment remaining static,” Jane Gratton, deputy director of public policy at the British Chambers of Commerce, said.