UK wage growth eases in sign of softening labour market

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UK wage growth eased in the three months to October as a decline in vacancies became the longest on record, adding to evidence that the labour market is softening.

Average pay grew by 7.3 per cent excluding bonuses, or 7.2 per cent including them, the Office for National Statistics said on Tuesday. This is down from recent peaks but marks a rise in real terms as inflation has slowed.

Public sector pay, buoyed by recent deals to resolve strikes, grew by 6.9 per cent excluding bonuses — the fastest pace on record, almost matching growth in the private sector.

The number of vacancies was 949,000 in the three months to November, declining for the 17th consecutive month to 45,000 lower than the previous quarter and 229,000 lower than a year earlier.

Darren Morgan, ONS director of economic statistics, said this meant hiring had now been slowing for “longer than in the aftermath of the 2008 global financial crisis”, although the number of vacancies was still well above its pre-pandemic level.

Chancellor Jeremy Hunt said it was “positive to see inflation continue to fall and real wages growing”.

The figures add to evidence that the UK jobs market is softening, with redundancies on the rise and vacancies more easily filled.

On Tuesday morning, traders increased bets that the Bank of England will be able to begin cutting interest rates sooner than policymakers have indicated.

Interest rate-sensitive two-year gilt yields fell 0.1 percentage points to 4.49 per cent, while benchmark gilt yields also dropped by 0.1 percentage point, dipping to 3.98 per cent.

Swaps markets boosted bets for rate cuts next year, with the first 0.25 percentage point cut now fully priced for June 2024. Traders now price in 0.88 percentage points of cuts next year, up from 0.75 percentage points ahead of the labour market data.

However, some analysts said the BoE would still want to send a tough message at its meeting on Thursday that interest rates were likely to remain high for longer.

“While momentum has weakened, the labour market is still tight,” said Yael Selfin, chief economist at KPMG. “The Bank of England will remain alert as continued tightness could cause a setback in its fight against inflation.”

The ONS figures were a slimmed-down version of its usual labour market report. The agency has not yet been able to resume publishing its usual range of jobs data — on hold since October due to a collapse in the response rate to the survey that underpins it.

Instead, it said tax records and benefits claims pointed to little change in the rates of unemployment or employment. It estimated that the jobless rate remained steady at 4.2 per cent in the three months to October, with HM Revenue & Customs records showing the number of payrolled employees was largely unchanged between October and November.

The agency said it would publish fuller figures from January, when it would also be able to update the population figures underpinning its estimates.

A new labour force survey, which will replace the flawed one, will not be fully up and running until the spring.

Additional reporting by Mary McDougall


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