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Cooling wage growth 'offers hope for those anticipating rate cuts'

Journalist: John Choong (Head of Markets and Research), Newspage

ended 15. October 2024

The UK continues to show that its labour market remains resilient. The unemployment rate fell for a third consecutive month in August, to 4.0% from 4.1%, according to the latest data by the Office for National Statistics (ONS), beating consensus estimates.

Meanwhile, total earnings growth cooled for a fourth consecutive month to 3.8% from an upward revised 4.1%, matching estimates. More encouragingly, regular earnings growth which strips out bonuses, although still higher, also declined and matched estimates, to 4.9% from 5.1%.

The number of people in employment also rose for a fourth consecutive month to 373k, significantly higher than the 250k markets had expected. Going the other way, however, the number of people making unemployment related benefits edged up to 27.9k from a heavily downward revised figure of only 0.3k.

Newspage asked experts for their thoughts on the latest data, how this shifts the inflation outlook, and what this could spell for the Bank of England's rate-cutting cycle.

4 responses from the Newspage community

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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Just like in the US, the UK's strong employment data could impact the implied trajectory of the Bank of England's rate cutting cycle. What's more, median earnings growth rose at its fastest pace in 4 months, at 6.0%, still a far cry from pre-pandemic levels that are consistent with 2% headline inflation. As such, we don't see jumbo cuts on the horizon, and this data will reinforce the Bank of England's cautious view.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
With rumours of employer National Insurance increases and removal of zero hours contracts, unemployment figures will likely spike after the Autumn budget, so I would keep any champagne on ice.
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John Choong
Head of Equities and Markets at Investors Edge
The BoE, despite its tarnished reputation from the inflation crisis, is steering the economy towards a soft landing.

Unemployment has hit a 7-month low, maintaining full employment, while wage growth continues to moderate. Total earnings growth is now back to pre-pandemic levels, consistent with 2% inflation, although regular pay growth still has ground to cover.

The near-term outlook for rate cuts is promising, with the BoE's closely-watched vacancy-to-unemployment ratio falling to a 3-year low thanks to the vacancy rate plummeting to 2.2%. This suggests easing labour market pressures, a key factor in the BoE's decision-making process.

However, it's premature for investors to celebrate. Upside risks loom, as rising oil and rebounding food costs potentially reigniting inflation expectations and wage demands. The upcoming budget also adds another layer of uncertainty, as a potentially higher living/minimum wage being introduced or hinted at could stoke inflationary pressures.
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Gabriel McKeown
Head of Macroeconomics at The Sad Rabbit Newsletter
The labour market is dancing to its own tune as the latest figures suggest it remains tighter than anticipated. With a remarkably resilient labour market, falling unemployment and slowing wage growth, we could be entering a Goldilocks scenario for the UK economy.

However, these mixed signals may present a challenge for the BoE when it comes to deciding its next policy moves. The cooling wage growth offers a glimmer of hope for those anticipating interest rate cuts. However, the tight labour market, as evidenced by falling unemployment and strong job creation, may give policymakers pause.

The central bank now faces a delicate decision, with market expectations leaning towards at least one more rate cut this year, but the resilience of the labour market could complicate this outlook.

UK equity markets may see modest gains with the resilient job market buoying confidence, however gilt yields are likely to edge lower due to cooling wage growth, reflecting eased inflationary concerns.