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UK wage growth eases in sign of softening labour market

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UK wage growth slowed sharply in the three months to October, adding to evidence of a softening labour market and prompting traders to increase bets the Bank of England will soon cut rates.

Average pay grew 7.3 per cent excluding bonuses, or 7.2 per cent including them, the Office for National Statistics said on Tuesday — a bigger than expected fall from a summer peak of 8.5 per cent.

This still marks an increase in real-terms wage growth, because inflation has slowed more than pay in recent months, falling to 4.6 per cent in October.

Following the release, traders ratcheted up bets that the BoE would begin cutting interest rates sooner than policymakers had indicated.

Interest rate-sensitive two-year gilt yields fell 0.1 percentage points to 4.49 per cent, and swaps markets boosted bets for rate cuts next year, with the first 0.25 percentage point cut fully priced for June 2024.

Traders priced in 0.88 percentage points of cuts for next year, up from 0.75 percentage points ahead of the labour market data.

The data suggests pay growth has increasingly been driven by deals reached to resolve strikes in the public sector, with the private sector jobs market weakening markedly as higher interest rates bite.

Over the latest three-month period, pay growth across the economy fell to 4.2 per cent on an annualised basis. In the private sector, the level of nominal pay fell between September and October for the first time since 2020, driven by weakness in the finance and construction sectors.

Economists said the data might lead some of the more hawkish members of the BoE’s monetary policy committee to stop calling for further rate cuts at this week’s policy meeting.

But they added it was unlikely to change the MPC’s collective view that policy would need to stay tight for a prolonged period to bring inflation sustainably back to target.

Elizabeth Martins, senior economist at HSBC, said the data “will take the wind out of the hawks’ sails to some degree”. However she noted that “the majority of the MPC won’t want to go into full dovish mode”, since the statutory minimum wage was set to rise sharply next year and unemployment was still low.

George Buckley, economist at Nomura, said that while the slowdown in wage growth was “eye-catching”, it was not clear it “shifts the dial” enough to lead the BoE to water down its guidance on the path of rates.

The ONS said on Tuesday that vacancies had declined for a 17th consecutive month to average 949,000 in the three months to November — an even longer decline than was seen after the 2008 global financial crisis.

But this still leaves the number of unfilled posts well above the pre-pandemic level.

The ONS also published quarterly figures, based on a survey of employers, showing that the number of workforce jobs in the UK stood at a record 36.8mn in September, an increase of 210,000 from June 2023. This included a record high of 32.5mn employee jobs.

Chancellor Jeremy Hunt said it was “positive to see inflation continue to fall and real wages growing”.

The ONS’s figures were a slimmed-down version of its usual labour market report. The agency has not been able to publish its usual range of jobs data since October owing to a collapse in the response rate to the survey that underpins it.

It said tax records and benefits claims pointed to little change in the rates of unemployment or employment.

It estimated that the jobless rate remained steady at 4.2 per cent in the three months to October, with HM Revenue & Customs records showing the number of payrolled employees was largely unchanged between October and November.

Additional reporting by Mary McDougall

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