The latest UK labour market statistics from the Office for National Statistics (ONS) are “as anticipated”, according to industry commentators, with the Bank of England less likely to cut rates than the Federal Reserve ahead of its policy meeting next week.
Annual growth in average regular earnings fell to 5.1% between May and July this year, while growth in total earnings – which includes bonuses – shrunk to 4%, the lowest increase seen in two years. In real terms, annual growth for regular pay amounted to 2.2% over the period, while total pay growth stood at 1.1%.
Elsewhere, unemployment fell by 10 basis points from 4.2% in April to June, to 4.1% between May and July. While the number of payrolled employees fell by 6,000 between June and July this year, it is up by 203,000 compared with July last year.
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Richard Carter, head of fixed interest research at Quilter Cheviot, said markets have been pricing in a “relatively slow pace of cuts” from the Bank of England, with wage growth serving as “one of the primary reasons”.
“Though wage growth is coming down, it remains significantly higher than the Bank’s 2% inflation target,” he said. “In real terms, average regular earnings are rising by 2.9%. While this may help buoy consumer confidence, it will still be of some concern to the BoE.”
He added: “The Bank of England’s next interest rate decision is now just over a week away, and today’s data, alongside the inflation and GDP prints due out before it meets, will no doubt play a major role in whether it opts to reduce rates further or hold for now.
“Markets have been pricing in a more aggressive path of rate cuts in the US than the UK, and unless something remarkable appears in either of these prints it is unlikely we will see this change.”
Zara Nokes, global market analyst at J.P. Morgan Asset Management, said that while a September rate cut from the Fed “looks almost certain”, the BoE “should not be tempted to follow suit this month”.
“Today’s moderation in UK wage growth, combined with the downside surprise in July’s service sector inflation, adds some credence to the Bank’s assessment that the wage-price cycle is unwinding.
“However, with growth accelerating, this is not an economy in desperate need of stimulus and it seems unlikely the Bank would deliver another rate cut in such quick succession.
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“In our view, the Bank would be better placed to wait until its November meeting to assess whether it needs to further ease off the brake. In doing so, policymakers could incorporate the outcome of the upcoming UK budget, while potentially also being able to gauge any impact on global growth and inflation dynamics stemming from the US election result.”
Neil Birrell, chief investment officer at Premier Miton Investors and lead manager of the Premier Miton Diversified Fund range, said: “The UK unemployment rate was as expected in August and wages came in as anticipated as well. The Bank of England will not want any surprises, good or bad, ahead of their decision on rates and this leaves the path clear for them to cut at their meeting.”
This story was written by our sister title, Portfolio Adviser
