Predictions that wage growth would continue to slow have been borne out by the latest figures from the ONS as they confirmed the lowest annual pay growth seen since 2022.
Labour market data showed that annual growth in employee earnings (excluding bonuses) was 5.4 percent for the three months from April to June 2024. This is the lowest growth seen since May to July 2022, when it was 5.2 percent.
Wage growth (including bonuses) was 4.5 percent, but researchers said that this total growth rate was affected by comparing the data with a period that included June 2023, when the NHS paid a one-off bonus.
Once wages are adjusted for inflation (consumer prices index including owner occupiers’ housing costs (CPIH)), annual rises were 2.4 percent for regular pay and 1.6 percent for total pay.
Sector pay differences
Public sector pay growth stayed strong at 6 percent for April to June 2024, although it was down on the previous three-month period when it was 6.4 percent. Wage growth for the private sector was 5.2 percent for the three months to June 2024. ONS said that the last time wage growth was lower than this was in the three month period to May 2022 when it was 5.1 percent.
The highest level of pay growth was in the finance and business services sector, which showed a 6.2 percent annual regular growth rate. The construction sector reported the smallest annual regular growth rate at 3.5 percent.
Levels of unemployment fell over the year, and the quarter, to 4.2 percent.
The employment rate was lower than a year earlier, but up during the quarter to 74.5 percent.
High growth remains
James Cockett, senior labour market economist for the CIPD, said: “Today’s labour market figures show that pay growth remains high despite slower growth being recorded than in previous months.
“This quarter unemployment has unexpectedly fallen, which could put further pressure on wages. Vacancies have now fallen for 25 consecutive months yet remain above pre-pandemic levels as many employers continue to have difficulties in recruiting.”
He said that for the new government to sustain progress on reducing unemployment, a goal in its ‘plan to make work pay’, employers would need to support the long-term unemployed and inactive by offering training and flexibility. And workplace adjustments will be required to ensure those with health conditions can return to and stay in work, he added.
Stagnating productivity
Hannah Slaughter, senior economist at the Resolution Foundation, said: “Workers’ pay packets continue to grow coming out of the cost-of-living crisis, but the recent strong real wage growth is running out of steam as productivity stagnates and the jobs market cools.
“While monetary policy makers may be less worried now about pay rises fuelling inflation, they should be concerned about the lack of reliable data on the wider state of the labour market.
She warned that official data is likely to be under-estimating the real level of employment in the UK, which could be close to a record high. “This data failure is blind-siding monetary policy makers as they weigh up what to do on interest rates,” she said.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The pressure that has squeezed the life out of all of us for the past couple of years is continuing to ease, as wages grow faster than inflation again. Meanwhile, the sun has been shining on the employment landscape, so more people are in work and able to enjoy these wage rises.
“This isn’t a massive transformation in employment fortunes, but the steady stream of people leaving the revolving doors with cardboard boxes in their hands has been replaced by the gradual arrival of more people in new suits and shiny shoes.”
She said for people in work, there was “more good news” as wages continue to rise ahead of inflation.
“They’re not running quite so hot as they were, and we’re likely to have to contend with slightly higher inflation in the coming months. However, the fact real wages are still growing means more people have escaped a cost-of-living crisis and are coming up for air.”
Disposable income
Coles added that this finding was also reflected in the HL savings and resilience barometer, which shows that real household disposable income is up 2.1 percent in a year.
“[This leaves people] with £235 at the end of the month – more than twice the £110 we had before the pandemic. This has helped almost two thirds of people build enough of a cash cushion to be resilient – up from less than a half before the pandemic.”
She said that while there was plenty to celebrate in these figures, it was a bit premature for millions of people.
“For those on lower incomes, the cost-of-living crisis still hasn’t loosened its grip, and it’s a struggle to make it to the end of the month. The barometer shows that just under a third of people still have poor financial resilience, and those on lower incomes, renters, single people and those who are out of work still have a horrible struggle to make ends meet.”
