Wages grow at slowest pace since 2022

Wages are rising at their slowest pace since summer 2022, data from the Office for National Statistics showed, indicating inflation might be slowing as one of its biggest drivers gives up ground. 

Average pay excluding bonuses climbed 5.4% in the three months to June, falling from 5.7% on an annual basis between March and May. Annual wages including bonuses were 4.5%, down from 5.7% the month before and a higher drop than expected – though this was partly due to the data accounting for NHS bonuses from the year before. After inflation wages were up 1.6% including bonuses and 2.4% excluding bonuses. 

“[Wages] are not running quite so hot as they were, and we’re likely to have to contend with slightly higher inflation in the coming months,” says Sarah Coles, head of personal finance, Hargreaves Lansdown. “However, the fact real wages are still growing means more people have escaped a cost-of-living crisis and are coming up for air.”

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“There’s plenty to celebrate in these figures, but for millions of people, it’s all a bit premature,” Coles adds. “For those on lower incomes, the cost-of-living crisis still hasn’t loosened its grip, and it’s a struggle to make it to the end of the month.”

What does wage growth mean for interest rates? 

Data showed the unemployment rate dipped on an annual and quarterly basis to 4.2%, while vacancies remained 11% higher than in 2020. 

This means employees “still have considering bargaining power” so there are “lingering concerns [wage growth] could ignite again,” says Susannah Streeter, head of money and markets, Hargreaves Lansdown. 

Slowing wage growth is good news for interest rates, as a hot labour market contributes significantly to rising prices. But even though the pace of growth is now slowing, it’s likely still faster than what the Bank of England would feel comfortable with to lower interest rates. 

“It still seems highly likely there won’t be another rate cut in September,” Streeter added.

Indeed, “today’s job numbers have all but ended hopes of a further interest rate cut for a few months,” adds Rob Morgan, chief investment analyst at Charles Stanley. 

“While goods inflation has been largely contained for the time being, services inflation continues to run hot, driven by higher wages. An employment market taking a long time to balance strengthens the case of the MPC hawks who want to wait for more evidence before they reduce rates any further,” he added.