Despite wage growth during the three months leading up to July, the labor market in the United Kingdom has shown signs of slowing. The Bank of England is now debating whether to increase interest rates again next month as a result of this.
On Tuesday, the Office for National Statistics (ONS) reported an uptick in the unemployment rate, a significant drop in employment levels, and the availability of jobs dipping below the one-million mark for the first time in two years.
Nevertheless, it marked yet another month of robust wage growth, a factor that many investors believe could prompt the Bank of England to increase interest rates from 5.25% to 5.5% on September 22, possibly marking the concluding move in this particular cycle.
Andrew Bailey, the governor of the Bank of England, stated this week that the institution was significantly closer to finishing a run of rate hikes. Despite this, borrowing costs may continue to climb as a result of ongoing inflation pressures.
According to the ONS, the unemployment rate climbed to 4.3% for the three months leading up to July, marking a rise from the previous rate of 4.2% in the prior month. This represents the highest level since September 2021.
In early August, the Bank of England released its latest projections for the third quarter, and the unemployment rate has already surpassed the 4.1% it had initially anticipated for the entire quarter.
Data revealed that employment witnessed a more substantial decline than anticipated, with a drop of 207,000 in the three months leading to July. This marked the most significant decrease since October 2020.
Even though wage growth has outpaced inflation, it has continued unabated. The 7.8 percent increase in wages excluding bonuses compared to the previous year was the highest annual gain since ONS data collection began in 2001 and was in line with the forecasts of the analysts surveyed by Reuters.
With bonuses included, salaries increased by 8.5%, exceeding the consensus estimate of 8.2%, in part due to retroactive payments to healthcare employees. With CPI inflation factored in, the increase was 0.6%, the first positive figure since March 2022.
Despite this positive development for employees, real wages still linger at levels lower than those seen over 15 years ago, reaching a historical low.
Chancellor of the Exchequer Jeremy Hunt said that one-time payments to government workers contributed to the strong salary growth. However, achieving sustained growth in real wages necessitates a continued effort to halve inflation.
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