- Wage growth fell to 3.9 per cent in the three months to July.
- Job vacancies dropped to 702,000 as payroll numbers continued to decline.
- Oil prices above $100 a barrel are adding to the Bank of England’s inflation dilemma.
UK workers could be heading into a difficult autumn as wage growth slows and the cost of fuel and other essentials threatens to rise again.
Average UK wage growth, including bonuses, eased to 3.9 per cent in the three months to July, down from 4.1 per cent in the three months to June, according to figures from the Office for National Statistics (ONS).
The slowdown comes as the labour market shows further signs of cooling. The number of workers on company payrolls continued to edge down, with retail and hospitality among the sectors reporting declines. Vacancies also fell, reaching 702,000 in the three months to August from 706,000 in the previous month.
For workers, the timing could prove uncomfortable. Pay is growing more slowly just as global energy prices have risen sharply following the conflict in the Middle East, with oil prices moving above $100 a barrel and petrol and diesel costs increasing for British motorists.
The ONS said vacancies are now at their lowest level outside the pandemic period for more than a decade. Liz McKeown, its director of economic statistics, said smaller businesses were continuing to report that higher labour costs were affecting their hiring decisions.
The figures will also matter to pensioners. The 3.9 per cent wage growth figure is expected to determine the increase in the state pension under the government's triple lock, which guarantees an annual rise based on whichever is highest among 2.5 per cent, inflation or average wage growth.
A weaker jobs market meets higher costs
The latest figures leave the Bank of England facing a difficult balancing act as it prepares to decide interest rates on Thursday.
The headline unemployment rate remained at 4.9 per cent, rather than rising to the 5 per cent expected by economists. Underlying pay growth, which excludes bonuses, was also unchanged at 3.5 per cent.
That could give the Bank some reassurance that wage pressures are easing. A weaker labour market can reduce the risk of persistent wage and price increases becoming embedded in the economy.
But the pressure is coming from another direction.
Official inflation figures due tomorrow are expected to show that UK consumer price inflation rose above 3 per cent in August, moving further away from the Bank's 2 per cent target.
The Bank is widely expected to leave its base rate at 3.75 per cent this week, although financial markets have begun to price in the possibility of further increases if inflationary pressures intensify.
Jake Finney, senior economist at PwC UK, said the combination of a weak jobs market and worsening external conditions created a dilemma for policymakers.
“With the jobs market remaining weak, it is difficult to see the case for raising interest rates. But the external backdrop is deteriorating again,” he reportedly said.
Finney also pointed to oil prices above $100 a barrel, saying this was close to the most adverse scenario outlined by the Bank in July and could increase the risk of renewed inflation.
For businesses, meanwhile, the labour market is becoming harder to navigate. Higher employment taxes and the increase in the minimum wage have already drawn criticism from business groups, while employers are also dealing with rising energy and other operating costs.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, warned that the continued fall in vacancies could signal weakening demand for workers.
“The UK labour market could be heading for a rockier autumn,” he reportedly said, pointing to rising energy bills and uncertainty ahead of the Budget as factors that could weaken hiring intentions.
The government has taken a more positive view of the figures. Work and Pensions Secretary Pat McFadden said the jobs market had remained resilient, while acknowledging that more needed to be done to help young people gain the skills and experience needed to find work.
The UK economy has so far performed better than expected in recent months despite the shock from the Iran war. But the latest numbers suggest the labour market may not be escaping the pressure.
For households, the question is whether slower wage growth will be enough to ease inflation — or whether another rise in everyday costs could arrive before pay has had time to catch up.
