UK unemployment rate unexpectedly falls as wages growth slows

Tuesday 13 August 2024 7:07 am | Updated: Tuesday 13 August 2024 8:30 am

This morning's figures are the first in a series of official economic data to be released this week.

Britain's unemployment rate unexpectedly fell in the three months to June, while wages growth slowed to its lowest level in two years in signs the jobs market is cooling.

According to data from the Office for National Statistics (ONS), the unemployment rate fell from 5.7% in the three months to May to 4.2% in June.

Economists had expected unemployment to hit 4.5%, and the Bank of England said earlier this month it expected it to hit 4.4%.

Policymakers have complained about the reliability of unemployment and jobs data since the ONS stopped its flagship labour force survey in October last year due to low response rates, so wages growth is seen as more important in the bank's decision-making.

The ONS had planned to introduce a new form of the survey in September, but last month said it would delay its introduction until 2025 after data collection issues were discovered.

According to data from the Office for National Statistics (ONS), average earnings, excluding bonuses, rose by 5.4% in the three months to May, compared with a 5.7% increase in the three months to June.

The figure represents the slowest pace of growth since May-July 2022, supporting the view that the jobs market is cooling.

Rate setters said they would look for signs of slowing wage growth, slowing service-sector inflation and a cooling jobs market before continuing to cut rates.

Annual wages, including bonuses, grew 4.5%, a sharp slowdown from 5.7% and below the 4.6% economists had expected.

ONS head of economic statistics Liz McKeon said basic pay growth remained relatively strong but continued to slow. Total pay growth slowed significantly, with last year’s one-off NHS bonus affecting the comparison.

The central bank is watching closely as private sector wage growth slows to 5.2% from 5.6%.

“Wage pressures are gradually easing, but disinflation remains gradual,” said Jack Kennedy, chief economist at job platform Indeed. “This could limit the amount of monetary easing the Bank of England can provide in the coming months, potentially putting the brakes on growth.”

Hawkish rate-setter Catherine Mann said on Monday it could take years for wage pressures in the economy to dissipate, and surveys showed businesses still expect relatively large increases in both wages and prices.

Job vacancies fell by 26,000 to 884,000 during the period, indicating continued pressure on the labor market.

This morning’s figures are the first in a series of official economic data to be released this week that will influence policymakers’ decision on whether to cut interest rates in September. It comes after the Bank of Korea cut borrowing costs earlier this month for the first time since March 2020.

Further ONS data is expected to make the bank's rate-setters wary of cutting rates again. UK inflation is expected to accelerate to 2.3% for the first time this year, breaking away from the central bank's 2% target, which it reached in May and maintained in June.

“Today’s figures show that we need to do more to help people get into work, because if they can work, they should,” said Chancellor Rachel Reeves.

This will be part of my Budget later this year, through which I will make tough decisions on spending, welfare and taxation to fix our economy, rebuild Britain and make every part of our country a better place.

The pound rose 0.24% against the dollar after jobs figures were released on Tuesday.

Read more UK economic data dump ready to bolster stance against September rate cut Similar tagged content: Sections Categories People & Organizations Related Topics

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