UK Wage Growth Slows, Rate Cut Speculation on the Rise

The UK achieved a fifth consecutive month of inflation-busting wage rises in October, but the pace of growth is slowing. Average wages without bonuses increased by 7.3% in October, down from 7.8% in the previous data, and including bonuses fell to 7.2% from 8%. This slowdown is significant, as it indicates that one-off payments in the public and private sectors have passed into history. Despite this, earnings still outpaced inflation, which stood at 4.6% in October.

Key Takeaways:

• Average wage increase without bonuses was 7.3% in October, down from 7.8% in the previous data.
• Wage growth including bonuses fell to 7.2% from 8%, a bigger drop than forecast by economists.
• Regular pay growth remains "very high" and wage growth remains one of the key metrics for Bank of England rate setters.
• The pay boom in the financial services sector over the past two years could be coming to an end.
• The Bank of England may maintain interest rates at 5.25% through at least next year and possibly the next.
• Investors are betting that the drop in average wages towards the Bank of England's forecast of 7.2% by the end of the year will hasten a first rate cut.
• The vacancy rate in October fueled speculation of a rate cut.
• The Bank of England's monetary policy committee could begin to bring down rates as early as May next year.

Statistics:

• Average wage increase without bonuses: 7.3% in October, down from 7.8% in the previous data.
• Wage growth including bonuses: 7.2% in October, down from 8%.
• Inflation rate: 4.6% in October.
• Average weekly earnings excluding bonuses: fell by 0.3% month on month in October, well below the 0.6% average increase in the first nine months of 2023.
• Vacancy rate: fueled speculation of a rate cut.

Sources:

• Office for National Statistics
• Martin Beck, chief economic adviser to the EY Item Club
• Samuel Tombs, chief UK economist at Pantheon Macroeconomics
• Jack Kennedy, senior economist at the jobs site Indeed