The job market in the United Kingdom continues to slow, with pay growth falling to its slowest pace in nearly two years, according to the Office for National Statistics (ONS). In the three months leading up to May, wages grew by an annual pace of 5.7%, which is still ahead of the pace of cost-of-living increases. Meanwhile, vacancies have decreased, and growth in the number of workers on payrolls has slowed. At the same time, the unemployment rate remains at 4.4%.
According to Liz McKeown, the Director of Economic Statistics at the ONS, “We continue to see overall some signs of a cooling in the labour market, with the growth in the number of employees on the payroll weakening over the medium term and unemployment gradually increasing.” As the number of job vacancies falls, decreasing by 30,000 between April and June, the retail and hospitality sectors have been the hardest hit. Although the number of job vacancies remains higher than pre-coronavirus levels, it has been steadily falling for two years.
Growth in earnings, although still relatively strong, is also showing signs of slowing down, according to Ms. Keown. However, with inflation decreasing, wages are currently enjoying their highest level in over 2.5 years after accounting for inflation. After accounting for inflation, wages increased by 3.2%.
Pay growth is an important consideration for the Bank of England when it comes to deciding on changes to interest rates. The interest rate decision is closely watched, with expectations that the bank may cut rates during its next meeting on 1 August. If wages continue to grow, a high level of inflation may push up costs for companies, which could lead to higher prices for consumers.
Inflation data released last week indicated that, while the rate of inflation remained unchanged at 2%, service-sector price hikes – which encompasses industries such as hairdressers and restaurants – remained strong. As a result, it is uncertain how much pay growth will offset inflationary concerns. Ashley Webb, a UK economist at Capital Economics, thinks that the Bank will cut interest rates from 5.25% to 5.00% in September instead of August, even though the slowdown in pay growth is encouraging
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