Wage growth slows as jobs market falters

Pay growth has eased to 7.3%, while the number of vacancies has fallen for the 17th month in a row. We explain what it means for the wider economy - and for interest rates.

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Wage growth has eased back at the fastest pace for two years, while vacancies dropped further in the longest run of declines on record, according to official figures.

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.

This was the steepest fall in earnings growth since the three months to November 2021 and marks a further pull-back from a record high of 7.9% in the summer.

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But despite easing back, pay growth outstripped inflation at the fastest pace for more than two years, up 1.2% after taking the Consumer Prices Index measure of inflation into account. It means real pay is growing, and incomes are stretching further than before.

The data suggests the Bank of England is less likely to cut interest rates in the near future.

In a further sign of a weakening jobs market, 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.

The rate of unemployment was largely unchanged at 4.2% in the three months to October, but more real-time figures estimate the number of workers on UK payrolls fell by 13,000 in November to 30.2 million.

Alice Haine, personal finance analyst at Bestinvest, the DIY investment platform, says the slowing jobs market was due to employers becoming “increasingly cautious about hiring amid uncertain economic conditions”.

What do the wage growth figures mean for interest rates? 

The slowdown in wage growth may reinforce 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.

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

Jake Finney, an economist at PwC UK, said: “Signs of labour market cooling will provide some reassurance to the Bank of England Monetary Policy Committee (MPC).

“With no major surprises in the economic data over the past four weeks, rates are likely to remain unchanged.”

The consensus is that interest rates could be cut as soon as the middle of next year. However, the consultancy Capital Economics predicts that the Bank won’t trim rates until later in 2024.

What is the outlook for inflation? 

Inflation is currently at its lowest level in two years. In the 12 months to October, the consumer prices index rose by 4.6%, which is down from 6.7% in September, and the lowest level since November 2021.

However, this is still more than twice the Bank of England’s target of 2%.

Inflation is expected to ease to 2.8% towards the end of next year, as announced in Jeremy Hunt’s Autumn Statement last month. 

A poll of economists by Reuters shows that inflation is predicted to average 4.4% this quarter and 4.% next quarter, and not reach the 2% target until late-2025. Median forecasts show inflation averaging 7.4% this year, 3% next year and 2.1% in 2025.

Additional reporting: PA 

Ruth Emery

Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.