UK Wage Growth Slows to 8.1%
The latest data on pay growth in the UK reveals a slight slowdown, as average wage increases, including bonuses, for the three months to August, dipped to 8.1%.
This figure, while slightly below economists’ expectations, has raised hopes that the Bank of England’s interest rates may have already reached their peak.
The Bank’s chief economist, Huw Pill, expressed concerns about wages growing too rapidly, potentially fueling inflation, but signs of cooling wage growth have emerged.
Impact of the Crisis in Gaza on Interest Rates
Despite the optimism about stable interest rates, fears of further increases persist due to the ongoing crisis in Gaza.
Economists suggest that this crisis could drive oil prices above $100 a barrel, leading to higher fuel costs for consumers. Such a development could potentially reignite inflation concerns.
Comparing Current Growth Figures to Previous Highs
The latest growth figures reflect a deceleration from the record-high levels observed in the two previous releases.
It’s important to note that pay growth continues to outpace inflation, which stood at 6.2% in August, offering some relief to consumers.
Chancellor’s Perspective
Jeremy Hunt, the Chancellor of Exchequer, weighed in on the situation, emphasizing the positive aspects of falling inflation and growing real wages.
He stressed the importance of sticking to the plan to halve inflation in order to sustain this progress.
Wage Growth and Bonuses
Wages, including bonuses, saw a 7.8% increase, aligning with expectations. The Office for National Statistics (ONS) pointed out that this marks one of the highest regular annual growth rates since comparable records began in 2001.
Insights from Chief Economist at KPMG UK
Yael Selfin, Chief Economist at KPMG UK, shed light on the factors influencing pay growth.
She mentioned that vacancy rates have played a significant role this year, with sectors having higher vacancy rates experiencing more robust pay growth due to firms’ efforts to attract and retain talent in a competitive labor market.
However, as the dynamics shift, less pressure on pay is anticipated. Forecasts suggest that regular pay growth will average 7.2% in 2023 and 4.9% in 2024. In August, annual regular pay growth reached 7.8%, with 8% growth in the private sector.
Labor Market Trends
The data also indicates that certain sectors experiencing persistent skill shortages, such as IT and finance, have seen some of the sharpest declines in vacancies. This trend might signal a shift in the competition for talent.
Overall, the number of vacancies in September decreased by 24%, reaching 314,000, compared to the peak in the middle of the previous year.
Vacancy Numbers Dip Below a Million
A noteworthy development is that the number of job vacancies has fallen below a million, specifically to 988,000. This serves as an indicator that labor demand is cooling in the current economic landscape.