Boost for Britain’s jobs market as unemployment fee falls to 4.1%

UK earnings growth has slowed to a two-year low but the unemployment rate edged back in a more encouraging sign for the jobs market, official figures revealed today.

The Office for National Statistics (ONS) said regular annual wage growth fell to 5.1 per cent in the three months to July – its lowest level since the quarter to July 2022.

With Consumer Prices Index (CPI) inflation taken into account, UK workers saw their pay increase by 3 per cent – down from 3.2 per cent in the previous three months.

The ONS also said the rate of unemployment was 4.1 per cent over the three months to July, dropping from 4.2 per cent over the previous three months.

This is now at its lowest since the three months to January 2024. Today, sterling rose against the dollar briefly on the back of the figures, before settling back to $1.3073.

The latest labour market data is being seen as particularly important, as the rise in total earnings is used to determine the ‘triple lock’ guarantee for the state pension.

This means state earnings are set to rise by 4 per cent next April, although the wage growth figures could be revised and the Government will confirm the planned increase in the autumn.

The state pension rises every April in line with the highest of: average earnings growth in the year from May to July of the previous year; CPI inflation in September of the previous year; or 2.5 per cent.

The rise in total pay is the lowest for nearly four years, according to the ONS.

The data on earnings was in line with the consensus in a Reuters poll of economists and likely keeps the Bank of England on track to cut interest rates again before the end of the year.

When it cut rates on August 1 after keeping them at a 16-year high of 5.25 per cent for nearly a year, the Bank said it would continue to keep a close eye on wage growth.

Investors see a roughly one-in-four chance of a September rate cut.

Luke Bartholomew, deputy chief economist at asset manager Abrdn, said the data probably left the debate around the Bank’s future moves unchanged.

‘There are still a few important data reports before the Bank needs to decide on interest rates again, but as things stand it is hard to see a cut next week. Instead, we expect the next cut to come in November,’ he said.

The figures also showed Britain’s economy added 265,000 jobs in the three months to July – far more than expected by economists in a Reuters poll which had pointed to a 123,000 increase.

Liz McKeown, director of economic statistics at the ONS, said: ‘Growth in total pay has slowed markedly again as one-off payments made to many public sector workers in June and July last year continue to affect the figures.

‘Basic pay growth also continued to slow, though less sharply. When taken together on a comparable basis, our different measures all show growth in the number of employees over the latest quarter, though annual growth has slowed over the year.’