A slowdown in the rate of wage growth was recorded in the United Kingdom.
It is worth noting that the speed of the mentioned process turned out to be the lowest for almost two years. This result is the latest sign of the cooling of the labor market in the United Kingdom. Currently, the labor market is keeping hopes alive that the Bank of England will start easing its monetary policy next month, which implies lowering the cost of borrowing.
In the three months through May in the United Kingdom, average earnings excluding bonuses rose by 5.7%. The corresponding information was released by the Office for National Statistics on Thursday, July 18. It is worth noting that in the three months through April, the mentioned figure increased by 6%. It is also significant that the average earnings excluding bonuses for the three months through May are generally in line with the consensus expectations of economists surveyed by the media.
Wage growth in the UK private sector showed a slowdown from 5.9% to 5.6%. It is worth noting that the Bank of England pays particularly close attention to the relevant indicator. In this case, the financial regulator of the United Kingdom monitors the degree of tension in the labor market. Wage growth in the private sector was the weakest since 2022.
The unemployment rate in the United Kingdom currently stands at 4.4%. This figure is the highest since 2021.
Liz McKeown, Office for National Statistics director of economic statistics, says that there are some signs of cooling in the labor market.
Against the backdrop of the current indicators of the condition of the United Kingdom’s economic system, the Bank of England has found it difficult to answer the question of whether the pace of easing underlying price pressures is fast enough to begin cutting interest rates, which are at a 16-year high. UK borrowing costs currently stand at 5.25%.
In the United Kingdom, the labor market is gradually stabilizing. However, at the same time, inflation in the services sector is at a level that is higher than preliminary forecasts. The corresponding indicator is equal to 5.7%.
Traders have already reacted to the data on wage dynamic. Currently, they estimate a 40% probability that the Bank of England will start cutting interest rates in August. It should be noted that on Wednesday, 17 July, the corresponding probability was estimated by traders at 30%. Also, against the background of the data on the labor market, the pound sterling rate fell.
Currently, officials are watching the labor market for signs of price persistence. For the Bank of England, the main question is whether it will be able to lower borrowing costs without triggering inflation above its 2% target.
Keir Starmer’s new Labour government is likely to be positive about cutting interest rates next month. This government aims to boost economic growth and intends to reduce the financial burden on UK residents, who are currently struggling with high mortgage costs.
Economists Dan Hanson and Ana Andrade say that the decline in the growth of regular wages in the private sector in May will be a welcome relief for the Bank of England after inflation in the services area in June above preliminary expectations. Experts say that their baseline scenario is that the financial regulator of the United Kingdom will ease monetary policy in August. At the same time, they noted that the decision between holding and lowering the cost of borrowing will be very difficult.
Real regular pay in the United Kingdom increased by 3.2% year-on-year.
The number of vacancies in the UK has fallen below 900,000 for the first time in three years. Employment rose by 19,000 to 33 million in the three months through May. Unemployment grew by 88,000 to 1.53 million. Inactivity fell 21,000 to 9.38 million. This figure includes the number of people between the ages of 16 and 64 who are neither working nor looking for a job.
Redundancies decreased by 13,000, to the 98,000 mark. The number of long-term sick fell by 16,000 to 2.81 million.
Ashley Webb, UK economist at Capital Economics, expressed doubts that the encouraging wage data will be enough to offset fears of continued inflation in the service sector. The expert also said that the mentioned company had changed its forecast for the timing of the first interest rate cut from 5.25% from August to September.
Minutes of the June meeting of the Bank of England show that the decision not to loosen the monetary policy strategy was finely balanced for some members of the Policy Committee of the financial regulator. Against this backdrop, a showdown between the so-called hawks and doves formed in July.
Three of the Bank of England’s more hawkish rate-setters, including Chief Economist Huw Pill, unequivocally demonstrated their reluctance to start lowering borrowing costs.
The United Kingdom’s financial regulator is closely monitoring labor market tensions.
Liz Kendall, the new work and pensions secretary, said that the UK was standing alone as the only G7 country where employment rates had not returned to the levels seen before the coronavirus pandemic. She also said that this truly dire inheritance that the new UK Government intended to tackle.
As we have reported earlier, UK GDP Demonstrates Growth.
