UK wage growth slows again, offering some relief to BoE

By William Schomberg and Sachin Ravikumar

LONDON (Reuters) -British wages grew at the slowest pace in almost a year, according to official data published on Tuesday that added to signs of a gradual cooling of the inflationary pressure in the labour market that has worried the Bank of England.

Growth in earnings excluding bonuses remained strong – reflecting the shortage of workers in the labour market since the coronavirus pandemic – but slowed for a third time in a row to an annual 6.6% in the September-to-November period.

That represented a sharp deceleration from growth of 7.2% in the three months to October and was the weakest increase in regular earnings since the three months to January 2023.

Yael  Selfin, chief economist at KPMG UK, said the smaller pay increases signalled further labour market weakness ahead.

“The marked slowdown in pay growth will ease the Bank of England’s concerns of a potential wage-price spiral, which could lead to faster falls in inflation,” Selfin said.

“Vacancies are also expected to fall further, which could see pay growth normalising towards levels consistent with the inflation target by the end of the year. This will likely bolster the case for interest rate cuts later this year.”

Sterling edged down against the U.S. dollar. Investors continued to bet on a first cut in the BoE’s benchmark rate – which is currently at its highest since 2008 – in May.

The BoE has been worried that pay is rising too quickly for inflation to fall to its 2% target, despite a slowdown in the headline rate of price growth in recent months.

Including bonuses, which can be volatile, pay growth slowed to 6.5% from 7.2% in the three months to October, the Office for National Statistics (ONS) said.

“While annual pay growth remains high in cash terms, we continue to see signs that wage pressures might be easing overall,” ONS director of economic statistics Liz McKeown said.

“However, with inflation still falling more quickly, earnings continued to grow in real terms.”

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 1.4% on an annual basis.

However, British households are on course to suffer their first fall in living standards over the course of a parliament since the Second World War, a tough backdrop for Prime Minister Rishi Sunak to contest a national election expected this year.


Britain’s economy might have fallen into a recession in the second half of 2023, data showed last week.

Tuesday’s ONS release showed vacancies fell for the 18th time in a row in the three months to December, dropping by 49,000. They were down almost 30% from their peak but remained above pre-pandemic levels, underscoring how many employers are still struggling to find staff.

British inflation has fallen from a peak of 11.1% in October 2022 to 3.9% last November but that was almost double the BoE’s target. Economists polled by Reuters expect it will fall only slightly to 3.8% in data for December due on Wednesday.

Some economists are predicting the headline rate of inflation will fall below 2% in the coming months but core inflation is likely to remain higher, keeping the BoE on alert.

Tuesday’s data showed the jobless rate held at 4.2% between September and November while employment rose by 73,000 people.

The ONS has changed the way that it measures those indicators after it struggled to get enough people to respond to its surveys. It plans to launch an improved version of its Labour Force Survey next month.

The BoE says it looks at other measures of the labour market beyond those published by the ONS, most of which show pay expectations remaining uncomfortably high for the central bank.

(Reporting by William Schomberg and Sachin Ravikumar; Editing by Andrew Heavens and Christina Fincher)