UK wage growth cools to two-year low as unemployment rate dips unexpectedly

Pedro Goncalves
·Finance Reporter, Yahoo Finance UK
Updated Tue, 13 August 2024 

UK wage growth slowed to the lowest rate in almost two years in the three months to June despite an unexpected fall in the unemployment rate, according to official data.

Average earnings excluding bonuses slowed to 5.4% from 5.8% in the three months to June and was 2.4% higher after taking inflation into account, said the Office for National Statistics.

This figure marks the slowest pace of growth since the summer of 2022.

Annual pay growth including bonuses slowed to 4.5% from 5.7% over the same period, in part due to one-off payment to NHS staff in June 2023 that was not repeated this year.

Liz McKeown, director of economic statistics at the ONS, said: "Basic pay growth, while remaining relatively strong, continues to slow. Growth in total pay slowed markedly, with last year's one-off NHS bonuses affecting the comparison.”


The Bank of England is keenly observing wage growth because of its significant impact on inflation, which is currently above the 2% target.

Annual average regular earnings growth for the public sector “remains strong” and ahead of the private sector at 6% in April-June, down from 6.4% in the previous quarter.

Across the economy, the finance and business services sector saw the largest annual regular growth rate at 6.2%. Pay grew slowest in the construction sector, at 3.5%.

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The percentage of people out of work and looking for a job fell 0.2 percentage points to 4.2% in the three months to June – lower than the 4.5% expected by economists.

The ONS reported that the employment rate for people aged between 16 and 64 stood at 74.5% during the same period. Additionally, economic activity among this age group was recorded at 22.2%.

Joe Nellis, economic adviser to accounting and tax firm MHA, warned that a fall in unemployment could cast doubt over a future rate cut in September.

“Unemployment has unexpectedly fallen back to 4.2% in July which means another cut in rates is unlikely in the near future. As expected, there has been a decline in growth in average earnings, suggesting that the UK labour market is softening. The effects of the recent public sector wage deals are unlikely to change this in the medium term," he said.

The latest figures from the ONS also reveal there were an estimated 884,000 job vacancies in the UK in May to July. That's a 26,000 fall or 2.8% drop from the period February to April, in a boost for the employment market.

“There was a fall in the unemployment rate, which is now lower than a year ago," McKeown said.

However, she cautioned, “The medium-term picture remains somewhat subdued with the employment rate still lower than a year ago and the growth rate in the number of payrolled employees having slowed over the year.”

More than 9.5 million people were classed as economically inactive in the three months to June, according to the ONS.

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The level of worklessness – a gross figure which has not been adjusted for the time of year – was the highest since 2011.

Responding to the latest figures, chancellor Rachel Reeves said: “Today’s figures show there is more to do in supporting people into employment because if you can work, you should work.

“This will be part of my budget later in the year where I will be making difficult decisions on spending, welfare and tax to fix the foundations of our economy so we can rebuild Britain and make every part of our country better off."

Neil Birrell, chief investment officer at Premier Miton Investors, said there was nothing in the figures to spook investors.

“It was weak US jobs data that sent markets into a tailspin, but there is no need to worry about that in the UK. The labour market is stronger than expected, with wage growth pretty much in line.

"The UK economy is performing well, which will be a boost to the new government, but there probably isn’t enough in these numbers to change Bank of England policy for now," he said.