Growth in wages in Britain slowed but remains at levels that would normally be too high for the Bank of England to keep inflation at its 2% target, adding to doubts about the possibility of an interest rate cut in two weeks’ time.
Earnings excluding bonuses – a key gauge of inflation pressure for the Bank of England – grew by 5.7% in the three months to the end of May compared with a year earlier, official data showed.
That represented the slowest growth in core pay since the summer of 2022 when employers scrambled to increase salaries to hire and retain staff amid a shortage of candidates.
Sterling and British interest rates futures were little changed after the data was published.
“A modest slowing in pay growth offers some good news for those looking for a rate cut in August,” Yael Selfin, chief economist at KPMG UK, said.
“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,” the economist added.
Total earnings, including bonuses, also grew by 5.7% over the period.
Both readings were in line with the median forecasts in a Reuters poll of economists.
In the three months to April, regular pay had risen by an annual 6% and total earnings were up by 5.9%.
The Bank of England is due to make its next rates announcement on August 1. After stronger-than-expected inflation data published yesterday, investors priced a roughly one-in-three chance of a first cut since 2020.
The Office for National Statistics also said today it was delaying the switch to a new version of its Labour Force Survey which had been due to take place in September.
The new version of the survey is designed to counter falling response rates for the current survey.
The ONS said the Transformed Labour Force Survey (TLFS) was attracting more respondents but showed a bias towards older people who were more likely to complete the online survey. Partial responses were another problem, it added.
“While we further develop the TLFS, we will continue to use the LFS as our lead measure of the labour market,” the ONS said, adding that it would report back in early 2025 on its progress.
The survey is the source of employment, unemployment and inactivity data and its problems have made the job of measuring the inflationary heat in the labour market more complicated for the Bank of England.
Headline wage and vacancies data come from separate surveys of businesses.
Today’s data showed some further signs of a cooling in Britain’s labour market with vacancies dipping by 30,000 in the April-to-June period, the 24th consecutive fall although they remained almost 12% higher than before the Covid pandemic.
The unemployment rate – based on the LFS survey that is being phased out – held at 4.4%.