UK pay growth slows to 3.9% ahead of key Bank of England rate decision
UK wage growth cooled to 3.9% in July as households face a renewed cost-of-living squeeze driven by the Iran war's impact on oil prices, complicating the Bank of England's upcoming interest rate decision.
The UK Office for National Statistics (ONS) reported that average total earnings growth, including bonuses, slowed to 3.9% in the three months to July, down from 4.1% in the previous period, matching economists' forecasts. The figure carries extra weight because it determines the state pension increase under the triple lock system, where pensions rise annually by whichever is highest: 2.5%, inflation, or average wage growth.
Cooling labour market
The number of workers on company payrolls continues to edge lower, driven largely by declines in retail and hospitality jobs. ONS director of economic statistics Liz McKeown said vacancies remain at their lowest level in over a decade outside the pandemic, with smaller businesses citing rising labour costs as a factor limiting hiring.
Unemployment held steady at 4.9%, better than the expected rise to 5%. Pay growth excluding bonuses stayed flat at 3.5%.
Rate decision looms
The Bank of England faces a difficult decision at its meeting on Thursday, weighing a weakening labour market against oil prices that have climbed above $107 a barrel amid the Middle East conflict. Markets expect the base rate to be held at 3.75%, though a small chance of a quarter-point hike remains. Investors anticipate at least four rate increases to 4.75% by the end of next year.
Economists describe the situation as a dilemma: a soft jobs market argues against raising rates, but a deteriorating external backdrop and rising fuel costs threaten to reignite inflation. Figures due Wednesday are expected to show UK inflation rose above 3% in August, well above the Bank's 2% target. Business leaders have also criticised the government's higher employment taxes and minimum wage increases for adding further strain on hiring.
