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LONDON, Nov. 12 – British wage growth excluding bonuses hit a two-year low in the third quarter, signaling potential relief for inflation. According to the Office for National Statistics, regular pay increased by 4.8% year-over-year in the three months to September, down from 4.9% in August and nearly 8% the previous year. This is the weakest growth since mid-2022.
The report sent sterling to its lowest level against the dollar since August, trading just above $1.28. The decline aligns with economists' forecasts and Bank of England (BoE) expectations, bolstering the central bank's confidence in gradually reducing inflation.
The BoE recently cut interest rates to 4.75%, marking only the second reduction since 2020, as part of a cautious approach to monetary easing. The drop in pay growth supports its strategy of gradual rate cuts, with experts like Paul Dales, chief UK economist at Capital Economics, predicting the next cut in February.
A key driver of inflation, private-sector pay growth, also eased to 4.8%. This aligns with the BoE's estimates, suggesting diminished wage pressures. Concurrently, job vacancies fell to their lowest since May 2021, indicating a cooling labor market.
The UK government’s recent budget, including a 1.2 percentage point hike in employer social security contributions, is expected to raise inflation by 0.5 percentage points while straining wages and corporate profits. The BoE projects these measures will challenge both inflation control and economic stability.
BoE Chief Economist Huw Pill noted that UK pay growth remains "sticky" at high levels, complicating the path to the bank's 2% inflation target. Despite international comparisons, he acknowledged Britain’s unique post-pandemic inflationary pressures.
While inflation-adjusted regular pay grew by 2.7% in quarterly terms, concerns persist over the reliability of labor market data. The ONS plans revised employment figures next month, which may impact future BoE decisions.
With inflation and wage growth stabilizing, the central bank faces a complex balancing act. "The easing labor market suggests gradual rate cuts are prudent," Dales said, "but the uncertain fiscal landscape requires vigilance."
($1 = 0.7805 pounds)
