UK wage growth slowed in May amid a cooling jobs market, underscoring the challenge for the Bank of England as policymakers decide whether to cut interest rates.
Figures from the Office for National Statistics (ONS) show annual pay growth eased from 5.9% in the three months to April to 5.7% in the three months to May, matching City economists’ predictions.
Unemployment was unchanged from 4.4% in April, while the number of job vacancies fell by 30,000, led by dwindling demand in retail and hospitality amid a continued slowdown in hiring across the economy.
Liz McKeown, the ONS director of economic statistics, said: “We continue to see overall some signs of a cooling in the labour market, with the growth in the number of employees on the payroll weakening over the medium term and unemployment gradually increasing.
“Earnings growth in cash terms, while remaining relatively strong, is showing signs of slowing again. However, with inflation falling, in real terms it is at its highest rate in over two and a half years.”
Financial markets indicate that traders expect Bank policymakers will hold off from cutting interest rates from the current level of 5.25% at their meeting on 1 August, instead waiting until they are convinced that inflation will remain close to the government’s 2% target before reducing the cost of borrowing.
Threadneedle Street has previously warned that inflation is likely to rise above 2% this year amid resilient wage growth and price increases in the service sector of the economy.
The figures come after headline inflation unexpectedly remained at 2% in June for a second month in a row, while underlying measures from the service sector also held steady in a development likely to dash hopes for an August rate cut.
Although wage growth is cooling, economists said at 5.7% it remained inconsistent with the Bank’s 2% inflation target.
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Yael Selfin, the chief economist at KPMG UK, said: “A modest slowing in pay growth offers some good news for those looking for a rate cut in August. But with annual pay growth excluding bonuses at 5.7%, the Bank of England may be unwilling to risk an August cut in rates before the labour market has cooled sufficiently.”