Wage Growth Drops to Lowest Level in Over 2 Years Amid Rise in Unemployment: ONS

The City of London financial district can be seen as people walk along the south side of the River Thames, in London, on March 19, 2021. Henry Nicholls/Reuters

UK wage growth has fallen to its lowest level in more than two years, amid an increase in the unemployment rate, official figures show.

Annual growth in average regular earnings excluding bonuses was 4.8 percent in July to September, down from 4.9 percent in the previous three months. It is the lowest level since the three months to June 2022, the Office for National Statistics (ONS) reported on Tuesday.

Earnings growth, however, continues to outstrip inflation as pay rose by 2.7 percent.

Commenting on Tuesday’s labour market figures, Liz McKeown, ONS director of economic statistics, said, “Growth in pay excluding bonuses eased again this month to its lowest rate in over two years.”

She added that pay growth including bonuses rose to 4.3 percent and was affected by last year’s one-off payments made to public sector workers.

Wages are a big driver of inflation and with the slowdown in pay growth, the Bank of England last week slashed interest rates from 5 to 4.75 percent. The decision reflected the “continued progress in disinflation,” after a prolonged period of higher interest rates, held by the bank to help ease price rises.

Unemployment

Unemployment data showed the rate rise to 4.3 percent in the three months to September, up from 4 percent in the previous three months and much higher than the 4.1 percent pencilled in by most economists.

It is also above the estimates of a year ago and pre-COVID-19 pandemic levels.

The ONS said that unemployment figures should be taken “with additional caution” owing to ongoing low response rates to its jobs survey. McKeown said in a statement on social media platform X that improvements to data collection introduced at the beginning of the year are “still feeding through.”

The number of people on payrolls fell slightly in September, with the ONS reporting a continued slowdown in annual growth.

“Job vacancies have fallen again, as they have been doing for more than two years now,” McKeown added.

The period of August to October marked a drop in vacancies by 35,000 on the quarter to 831,000. It is the 28th consecutive decrease in vacancies, but current levels still remain above the pre-pandemic results.

The economic inactivity rate, which is the proportion of people aged between 16 and 64 who are not in the labour force, was estimated at 21.8 percent in July to September 2024. Inactivity figures were down in the latest quarter and below estimates of a year ago.

Growth Mission

Downing Street has committed to tackling unemployment and economic inactivity in its growth mission to achieve an 80 percent employment rate. Work and Pensions Secretary Liz Kendall said that a near record 2.8 million people in the UK are out of work owing to long-term sickness.

Last month Labour announced a £240 million cash injection for local services to help people back into work and drive down inactivity. The announcement came ahead of the Get Britain Working White Paper, which will set out the government plan for reform to break down barriers to work.

Kendall said in a statement that the plan will “tackle spiralling inactivity, grow the economy,” and help achieve the “ambitious 80 percent employment rate.”

According to the British Chambers of Commerce (BCC), employers struggle to fill job vacancies, which constrains operations and profitability. BCC Director General Shevaun Haviland welcomed the cash investment from the government and urged for the changes to the labour market to be delivered quickly.

Business leaders have warned that changes introduced by the Autumn Budget could become a barrier to both economic growth and employment.

Last week, hospitality bosses said that changes to the employer National Insurance Contribution threshold would lead to business closures and job losses within a year.

British supermarkets Asda and Sainsbury’s have also warned that tax changes in the Budget will push up prices, passing extra costs on to consumers.