Door opens wider to rate cuts as wages rise at slowest pace for more than two years

Pay rises dropped to their lowest rate for more two years over the summer latest official figures show today.

Basic wages rose by an annual rate of 4.9% in the three months to August, according to latest data from the Office for National Statistics (ONS).

That represents a slowdown from 5.1% in the previous quarter and could help pave the way for an interest rate cut in November.

Pay was last rising more slowly in the April to June quarter in 2022.

Real wages rose 1.9% in the quarter after adjusting for inflation, so workers are continuing to get better off in real terms, albeit at a slower pace than in previous months.

Annual growth in total earnings - including bonuses - was 3.8%; although this figure is distorted by the impact of one-off payments to NHS and civil service workers in June, July and August 2023.

The unemployment rate continued to ease, falling to 4% in June to August, down from 4.1% in May to July.

The number of job vacancies fell by 34,000 in the July to September quarter to 841,000. It was the 27th consecutive fall but vacancies are still above pre-pandemic levels. Lindsay James, investment strategist at City firm Quilter Investors, said: "Wage growth has been a persistent challenge for the Bank of England. Although it is moving in the right direction, the pace remains well above the Bank’s 2% inflation target.

“This morning’s figures indicate that average regular earnings are rising by 2.7% in real terms. While wage growth isn’t falling as quickly as the Bank might like, the fact that it hasn’t increased suggests we might see a further base rate cut on 7th November.”

Joe Nellis, economic adviser to accountants MHA said: ”With the underlying causes of inflation cooling and the headline inflation rate likely to fall below the Bank of England’s (BoE) 2% target, the more doveish members of the Monetary Policy Committee will feel emboldened to push for another cut to interest rates when they meet next month.

“Further ahead the picture is not so rosy as the inflationary pressures of winter fuel bills rising and the ongoing tensions in the Middle East could reverse the downward pressure this month of a drop in oil prices.