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UK wages grew much more than expected and at a record annual pace in the three months to June, according to official figures that are likely to reinforce the Bank of England’s concerns over the pressures fuelling inflation.
In April to June, annual growth in regular pay, which excludes bonuses, was 7.8 per cent, according to data published on Tuesday by the Office for National Statistics. That is the highest regular annual growth rate since comparable records began in 2001.
Annual growth in employees’ average total pay, which includes bonuses, was 8.2 per cent in the three months to June, up from 7.2 per cent in the three months to May and the largest annual growth rate seen outside the coronavirus pandemic period.
The annual rate of growth in total pay was affected by one-off bonus payments made by the government to NHS staff in June, but both key measures of wage pressures exceeded analysts’ expectations.
Economists polled by Reuters had forecast increases in total and regular pay of 7.3 per cent and 7.4 per cent respectively.
The BoE’s Monetary Policy Committee carefully watches wage growth and labour market data for signs of persistent price pressures. The bigger than expected increases saw market expectations of a 0.25 percentage point rise in interest rates in September jump to 99 per cent.
This was despite clear signs that the labour market continued to loosen with an unexpected rise in unemployment, falling inactivity and declining employment.
Accelerating wage growth “supports our view that the Bank of England will deliver one more 25 basis point rate hike before it brings its tightening cycle to a close,” said Ruth Gregory, deputy chief UK economist at the consultancy Capital Economics.
She added that expectations on interest rates could change with inflation data for July due out on Wednesday, with analysts forecasting a sharp slowdown to 6.8 per cent from 7.9 per cent in June.
There was no sign of the expected easing of private sector pay growth. Annual average regular pay growth for the private sector was 8.2 per cent in the three months to June, the largest annual growth rate seen outside of the Covid-19 period.
With inflation easing, annual growth in regular pay exceeded price increases for the first time since March 2022, up from a 3.1 per cent contraction in the three months to February.
Employment minister Guy Opperman said Tuesday’s data showed “our jobs market continues to show its strength with employment at near record levels and inactivity down by over 300,000 since the pandemic peak”.
He added that combined with falling inflation and the government package of reforms to remove barriers to work, “we are on the right path to drive down household costs and grow our economy”.
However, labour market conditions also loosened more than expected. In the three months to June, the rate of unemployment increased 0.3 percentage points on the quarter to 4.2 per cent, in contrast with analysts’ expectations of no change.
The number of people in employment fell by 66,000 in the three months to June, whereas economists had forecast a 75,000 increase.
Job inactivity also marginally declined to 20.9 per cent despite the number of people prevented from working by long-term sickness hitting a new record.
Jonathan Ashworth, Labour’s shadow work and pensions secretary, said the ONS data showed the government was “failing working people and businesses across Britain”.
He said: “Families are struggling to get by, there are record numbers of people out of work due to long-term sickness, and the employment rate for over 50s is still below pre-pandemic levels . . . The consequence is thousands written off and a rising benefit bill.”
In May to July 2023, the estimated number of vacancies fell by 66,000 on the quarter to 1,020,000, marking the 13th consecutive period of decline, although job vacancies remain higher than before the pandemic.
Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said the ONS data showed that while slack in the labour market was increasing rapidly, “wage growth still has too much momentum for the MPC to stop tightening just yet”.
Additional reporting by Lucy Fisher in London
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