Britain's labour market is showing clear signs of cooling, with official figures revealing a dramatic slowdown in wage growth and a worrying rise in job losses. The latest data presents a significant challenge for Chancellor Rachel Reeves, who now faces mounting pressure to stimulate economic activity.
The Office for National Statistics reported that regular pay growth, excluding bonuses, fell to 5.7% in the three months to July – down from 6% in the previous period and marking the slowest pace of growth since early 2022. This cooling effect is even more pronounced in the private sector, where wage growth dropped to 5.8% from 6.2%.
Unemployment Rises as Job Vacancies Decline
Meanwhile, the unemployment rate climbed to 4.3% while the number of people out of work and not seeking employment increased significantly. Job vacancies continued their downward trend, falling for the 17th consecutive period to 836,000 – the lowest level since summer 2021.
This economic slowdown is creating a complex dilemma for policymakers. While weaker pay growth might help ease inflation concerns, the rising unemployment figures signal potential trouble for the broader economy.
Bank of England's Interest Rate Dilemma
The mixed signals from the labour market are likely to complicate the Bank of England's decision on interest rates. Most economists had anticipated a rate cut in September, but these latest figures may cause the Monetary Policy Committee to proceed with caution.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted: "The MPC likely will remain hesitant to reduce Bank Rate until it is confident that wage growth will slow to a rate consistent with the 2% inflation target."
With real wages still growing despite the slowdown – thanks to falling inflation – consumers have seen some relief. However, the broader picture suggests the UK labour market is at a turning point, with implications for both economic policy and household finances across the nation.
