UK wage growth slows for first time in three months to July

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British wages growth slowed in the three months to July as payroll employment and hiring weakened, official data released on Tuesday showed.

According to the National Bureau of Statistics, annual earnings growth excluding bonuses fell to 5.1%, down from 5.4% in the three months to May. The figure was in line with analysts' expectations.

Wage growth, including bonuses, slowed to 4%, but the figure was distorted by large one-off payments to public sector workers last year.

According to ONS tax records, paid employment fell by 6,000 in July and 59,000 in August, while vacancies also fell.

Policymakers on the Bank of England's Monetary Policy Committee want to see clear evidence that wage pressures, which are driving services price inflation, are easing before cutting rates again, after deciding to cut the bank rate to 5% in August.

Ashley Webb, an economist at consulting firm Capital Economics, said the data was encouraging, signaling that labor market conditions are continuing to cool but not enough to prompt an immediate 0.25 percentage point cut at the September Monetary Policy Committee (MPC) meeting.

The wage figures determine next year's state pension increase, which is increased annually by 2.5%, the highest of the previous September's wage growth rate and inflation.

The Resolution Foundation, a think tank, said that based on 4% wage growth, the new full state pension would rise by $460 a year, to $11,960.

That means pensions will rise much faster than benefits for working-age people, and the Bank of England forecasts that consumer prices will rise 2.1% in September.

Other business surveys show that wage growth is slowing from near-record highs but is still gradually increasing, while GDP growth has been recovering in recent months.

Economists say the BoE may be more hesitant to cut rates than the U.S. Federal Reserve, which has seen a marked weakening in the labor market, or the European Central Bank, which has seen a sharp drop in inflation.

The BoE has made it clear that it is reviewing the wider survey to gauge real conditions in the labour market, as ongoing problems with the ONS Labour Force Survey (LFS) have made official data unreliable.

Tuesday's payrolls figures were at odds with the LFS-based figures, which said the unemployment rate was unchanged at 4.1% in the three months to July, down from 4.3% in the previous quarter.

Employment also strengthened and economic inactivity declined, according to the LFS measure.

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Statistics Canada acknowledged ongoing difficulties in assessing the consistency of LFS data with other measures of employment, including payrolls figures and the Workers' Compensation Survey.

According to the ONS, these sources are more reliable than the LFS, and both show that employment growth has continued to moderate over the past year.

ONS revenue figures are based on other surveys and are not affected by the LFS issues.

But Rob Wood, an economist at consultancy Pantheon Macroeconomics, said the BoE would likely mix all this data together and wait until November to cut rates again, which would give a clearer view of the government’s fiscal policy after the budget is announced.

The pound shrugged off the data, rising just 0.05% to $1.3079.

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