Wage rises slow as retail and hospitality jobs continue to fall
The rate of wage rises in the UK continued to slow as the number of job vacancies and people in work fell, according to new figures.
Average weekly earnings slowed to 4.6% down from 5%, while pay excluding bonuses continued to grow 5%, according to data from the Office for National Statistics (ONS) for the three months to June.
It means the gap between inflation – the rate of price rises – and wage increases is narrowing, and the labour market is slowing. Inflation stood at 3.6% in June.
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The number of employees on payroll has fallen in ten of the last 12 months, with the falls concentrated in hospitality and retail, the ONS said. It came as employers faced higher wage bills from increased minimum wages and upped national insurance contributions.
As a result, it’s harder to get a job now than a year ago.
“Job vacancies, likewise, have continued to fall, also driven by fewer opportunities in these industries,” the ONS director of economic statistics, Liz McKeown, said.
The number of job vacancies fell for the 37th consecutive period and in 16 of the 18 industry sectors. Feedback from employers suggested firms may not be recruiting new workers or replacing those who left.
Unemployment remained at 4.7% in June, the same as in May.
The ONS, however, continued to advise caution in interpreting changes in the monthly unemployment rate due to concerns over the figures’ reliability.
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The exact number of unemployed people is unknown, partly because people do not respond to surveys and answer the phone when the ONS calls.
The worst is yet to come
Wage rises are expected to fall further, and redundancies are anticipated to rise.
“Wage growth is likely to weaken over the course of the year as softening economic conditions, rising redundancies and elevated staffing costs increasingly hinder pay settlements,” said Suren Thiru, the economics director of the Institute of Chartered Accountants in England and Wales (ICAEW).
“The UK jobs market is facing more pain in the coming months with higher labour costs likely to lift unemployment moderately higher, particularly given growing concerns over more tax rises in this autumn’s budget.”
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What does it mean for interest rates?
While wage rises are slowing, the fact that they’re still above inflation means the interest rate setters of the Bank of England could be cautious about further cuts.
Higher pay can cause inflation to rise. The central bank is mandated to bring down inflation to 2%.
But one more interest rate cut this year, in December, is currently expected by investors, according to data from the London Stock Exchange Group (LSEG).
The evidence of a weakening labour market provides justification for the interest rate cut of last week.
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The average two-year mortgage rate has fallen below 5% for the first time since the Liz Truss mini-budget.
The interest rate charged on a typical two-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.
It means there are more expensive and also cheaper two-year mortgage products on the market, but the average has fallen to a near three-year low.
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Not since September 2022 has the average been at this level, before former prime minister Liz Truss announced her so-called mini-budget.
The programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility, led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.
It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal in the weeks after the mini-budget.
Why?
The mortgage borrowing rate dropped on Wednesday as the base interest rate – set by the Bank of England – was cut last week to 4%. The reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers and despite inflation forecast to rise further.
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It’s that expectation of elevated price rises that has stopped mortgage rates from falling further. The Bank had raised interest rates and has kept them comparatively high as inflation is anticipated to rise faster due to poor harvests and increased employer costs, making goods more expensive.
The group behind the figures, Moneyfacts, said “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding that fiscal event, this milestone shows lenders are competing more aggressively for business.”
In turn, mortgage providers are reluctant to offer cheaper products.
A further cut to the base interest rate is expected before the end of 2025, according to London Stock Exchange Group (LSEG) data. Traders currently bet the rate will be brought to 3.75% in December.
This expectation can influence what rates lenders offer.
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