The UK’s unemployment rate rose to 4.3% in the three months to September, up from 4% in the previous quarter, signalling a continued cooling of the labour market, according to the latest data from the Office for National Statistics (ONS).
However, the ONS has cautioned against placing too much emphasis on these figures due to data collection challenges, leading to questions about their accuracy.
Despite the dip in pay growth, wages are still outpacing inflation, which tracks the rate of price increases. Excluding bonuses, pay grew at an annual rate of 4.8% between July and September, marking the slowest pace in over two years.
Job vacancies, which have been falling steadily for more than two years, also declined further.
Nonetheless, vacancy numbers remain slightly above pre-pandemic levels, according to Liz McKeown, Director of Economic Statistics at the ONS.
Speaking to the BBC’s Today programme, McKeown noted these figures highlight an ongoing “easing of the labour market.”
A recent line chart tracking inflation-adjusted pay growth shows that regular wages in Great Britain have fluctuated significantly over the past decade.
From a real wage drop of 0.3% in mid-2014, wage growth hit a high of 5.3% in 2021 before plummeting to a low of -4.1% in 2022.
The latest figures, from July to September 2024, show wage growth adjusting back to 2.7%, though economists caution this trend may not last.
The Bank of England is closely monitoring the ONS’s jobs data to guide interest rate decisions. Last week, it implemented a second rate cut this year, with inflation now at 1.7%, below its 2% target.
The Bank is expected to take a longer-term view of labour market trends rather than focusing on short-term data irregularities.
In the private sector, businesses face additional pressure due to rising costs and tax changes. Some major retailers, including Asda, Sainsbury’s, and Marks & Spencer, have flagged substantial increases in operational costs due to a National Insurance hike and a rise in the minimum wage—set to take effect from April as part of Chancellor Rachel Reeves’ recent Budget.
These added expenses have led businesses to warn of potential cuts in hiring, restricted wage increases, and price hikes.
Public sector pay awards granted by the government are set to influence official earnings figures throughout the year, but economists are concerned that the planned increase in National Insurance contributions could place a squeeze on private sector wages.
Rob Wood, Chief UK Economist at Pantheon Macroeconomics, stated that although the labour market is gradually loosening, it remains tight.
“Wage growth is slowing but remains too high to sustainably bring inflation to the target,” he commented. Wood added that the Bank of England is likely to focus on larger economic trends rather than minor data fluctuations from the ONS.
While some analysts do not anticipate another rate cut by the Bank of England in December, Work and Pensions Secretary Liz Kendall emphasised the need to address living standards.
From April, an increase in the National Living Wage will benefit around three million of the UK’s lowest-paid workers, in line with the government’s commitment to boost pay for lower-income earners.
