Thursday, July 18, 2024 7:46 AM
Hopes that the Bank of England could start cutting interest rates in August rose slightly after new figures showed wage growth slowed in line with expectations.
Annual wage growth excluding bonuses averaged 5.7 per cent between March and May, down from 6.0 per cent last month and in line with expectations, according to data from the Office for National Statistics (ONS).
Including bonuses, annual wages also rose by 5.7 percent, as expected. That was down 5.9 percent from earlier.
It is the first time in nearly two years that annual wage growth has fallen below six percent. “Earnings growth in money terms, while remaining relatively strong, is once again showing signs of slowing,” ONS director of economic statistics Liz McKeown said.
“However, with falling inflation, in real terms it is the highest in more than two and a half years,” she added. The figures showed that wage growth in real terms was 2.5 percent.
Unemployment remained unchanged at 4.4 percent, in line with expectations. The unemployment rate has crept up from 3.8 percent at the end of last year, although there are some uncertainties about the accuracy of the data.
While unemployment has remained constant, there have been other signs that the labor market is continuing to cool.
UK job vacancies fell by 30,000 between April and June, falling for the 24th consecutive quarter.
Mckeown noted that nearly every sector saw job vacancies fall, but that retail and hospitality were hit particularly hard.
Labor market data is the last big set of statistics ahead of the Bank of England’s latest interest rate decision in a few weeks.
Minutes from the bank’s last meeting in June showed the decision to hold rates at 5.25 percent was “finely balanced”, suggesting a number of rate-setters are actively considering a cut.
However, the likelihood of an interest rate cut in August fell after yesterday’s inflation data came in slightly higher than expected.
The headline inflation rate remained at two percent for the second consecutive month. Services inflation, the bank’s preferred gauge of domestic price pressures, also held steady at 5.7 percent.
While wage growth has cooled slightly, it is still well above levels consistent with inflation remaining at the 2 percent target.
The pound held steady around $1.30 after the data was released, suggesting markets do not think the numbers significantly increase the likelihood of a rate cut.
Some economists have suggested that the Monetary Policy Committee (MPC) may wait for more evidence before deciding to cut interest rates.
“A slight slowdown in wage growth offers good news for those looking for a rate cut in August, but with annual wage growth excluding bonuses at 5.7 per cent, the Bank of England may not be willing to risk an August rate cut ahead of labour. the market has cooled enough,” said Yael Selfin, chief economist at KPMG UK.