UK pay growth slows but BoE seen keeping rates high

By William Schomberg and David Milliken

LONDON (Reuters) -British wage growth slowed by the most in almost two years, official data showed on Tuesday, but pay is probably still rising too fast for the Bank of England to relax its tough stance against cutting interest rates.

Along with other signs of a cooling of the inflationary heat in the labour market, earnings excluding bonuses were 7.3% higher in the three months to October than a year earlier, down from a growth rate of 7.8% in the three months to September.

The fall was the sharpest since the three months to November 2021, the Office for National Statistics said. Economists polled by Reuters had forecast wage growth of 7.4%.

“While annual growth in earnings remains high in cash terms, there are some signs that wage pressure might be easing overall,” Darren Morgan, director of economic statistics at the ONS, said.

Britain’s economy is stagnating and some analysts have said it could go into a shallow recession over the coming months, similar to the risk faced by other European nations.

But many employers are struggling to fill vacancies after the British workforce contracted sharply during the pandemic, and because of post-Brexit restrictions on workers from the European Union.

“The pay data is clearly now moving in the right direction from the perspective of the Monetary Policy Committee,” Martin Beck, chief economic advisor to forecasters EY ITEM Club, said.

“But given that annual pay growth is still running at more than twice the pace that would be consistent with the Bank of England’s 2% inflation target, the MPC is likely to stick with its ‘high-for-longer’ message for a little while yet.”

JP Morgan economist Allan Monks said slower wage growth, if repeated in coming data, could lead to the BoE shifting to a more neutral policy stance in early 2024.

Sterling weakened against the U.S. dollar after the ONS data and British government bond yields fell sharply.


The BoE raised interest rates 14 times in a row between December 2021 and August 2023. It has since kept rates on hold and is again expected to stick to its message that rate cuts are not on the table on Thursday after its December meeting.

The slowdown in regular pay growth represented a further fall from a summer peak of 7.9% that was the highest since the ONS began collecting the data in 2001.

Including bonuses, which are typically volatile, pay growth slowed to 7.2% from 8.0% in the three months to September.

The BoE has said it is worried that pay growth, especially in the private sector, is still too strong to get inflation down to its 2% target, even as the broader economy stagnates.

Regular private sector earnings growth dropped to 7.3% from 7.9% in the July-September period.

Other central banks are also keeping a close eye on inflation pressures in their tight job markets. U.S. data last week showed wages rose by an annual 4.0% in November, still, too fast to get inflation to the Federal Reserve’s 2% target.

Although inflation in Britain is down from 11.1% in October last year, its most recent reading of 4.6% is more than double the BoE’s 2% target, leaving the central bank on alert about price pressures in the economy.

Vacancies fell for a 17th time in a row in the three months to November and were down almost 30% from their peak. But they remained above pre-pandemic levels.

Finance minister Jeremy Hunt last month announced changes to the welfare system in a bid to get more people into work.

Tuesday’s data showed that Britain’s unemployment rate held at 4.2% in the three months to September while employment rose by 50,000 people.

The ONS has said those figures may not prove reliable as it has had to change the way that it measures the jobs market.

Despite the slowdown in headline pay growth, workers saw the biggest increase in their incomes after adjusting for consumer price inflation since the three months to September 2021, with a rise of 1.2% on an annual basis.

(Reporting by William Schomberg and David Milliken; Editing by Barbara Lewis and Andrew Heavens)