UK wage growth slows

UK wage growth slowed but remained robust in the three months leading up to May, fueling uncertainty about the speed at which the Bank of England will reduce interest rates.

On Thursday, the Office for National Statistics reported that annual growth in average weekly earnings, including bonuses, slowed to 5.7%, down from 5.9% in the three months leading up to April. Excluding bonuses, annual wage growth also slowed to 5.7%, down from 6% in the three months leading up to April, aligning with analysts' expectations. This indicates that regular earnings have grown by 2.5% after adjusting for inflation over the same period.

Economists noted that the modest slowdown in wage growth was encouraging, but it was insufficient to assure the more hawkish members of the monetary policy committee that price pressures were under control.

The rate of private sector pay growth, still bolstered by a substantial increase in the minimum wage, remains stronger than the Bank of England anticipated when it last released forecasts in May.

This persists despite a weakening labor market over the past year. On Thursday, the ONS reported that vacancies continued to decline in June, with the unemployment rate steady at 4.4% from the previous month but higher than the previous quarter.

These figures follow a series of strong data indicating that inflationary pressures in the economy may be more persistent than the Monetary Policy Committee anticipated during its last meeting in June.

Last month, the BoE held interest rates at 5.25%. However, in the past week, official data has shown stronger GDP growth, persistent services inflation, and ongoing pay pressures, which will complicate next month's interest rate decision. This comes despite headline inflation remaining at the BoE's target of 2% in June.

‍