Euronews Business looks at why growth in the UK’s average earnings, excluding bonuses, has fallen to its lowest level since June 2022, in the three months up to July.
ADVERTISEMENTThe UK’s year-on-year average earnings, which does not take bonuses into account, rose 5.1% to £647 per week in the three months ending July, according to the Office for National Statistics (ONS). Although this was in line with analyst forecasts, it was down from the previous three-month period’s 5.4%. It was also the smallest increase since June 2022.
Average earnings excluding bonuses is also known as regular pay.
A decrease in private sector earnings growth, from 5.3% in the previous period to 4.9% in this one, contributed significantly to regular pay lagging. Public sector wages also slowed to 5.7% in the three months to July, from 6% in the previous three-month period.
The manufacturing sector experienced the biggest yearly regular wage bump in this period, at 5.9%, with the services sector recording a 5.1% increase. Wages in the finance and business services sector also grew 5.4% during the three months to July.
However, wages in the construction sector grew at a relatively slower pace of 3.9%.
The UK’s year-on-year average weekly earnings, including bonuses, for the three months to July increased 4% to £689 per week, according to the Office for National Statistics (ONS). This latest result missed analyst expectations of 4.1% and was also down from the previous three-month period’s 4.6%. It was also the lowest figure since November 2020.
Average earnings including bonuses is also known as total pay.
This drop was largely because of wage growth in the public sector lagging considerably, having fallen to 0.8% in the three months to July, down from 1.9% in the previous period. Similarly, the private sector also experienced slowing earnings growth, dropping to 4.8% in this period from 5.1% in the last one.
However, one-off payments made to Civil Service and National Health Service (NHS) staff in June and July last year also caused a larger drop in this period’s figures.
Alice Haine, personal finance analyst at Bestinvest, by wealth management company Evelyn Partners, said in an email note: “Slowing pay growth may bolster the chances of the Bank of England pushing ahead with another rate cut this year.
“While economists don’t expect a rate cut as soon as this month, as the BoE remains ultra-cautious about cutting rates ‘too much or too quickly’- there is never a set timetable on when a rate cut will happen.
“While upward pressure on pay appears to be easing, in real terms, regular salaries jumped 2.2% and total pay 1.1% once inflation is accounted for, meaning incomes are still comfortably outstripping price rises.
“It means households can enjoy the fact that pay packets are still stretching further than they did a year ago, giving budgets a little boost after a difficult few years though a cautious stance towards spending could still be the most sensible approach.”
UK unemployment drops to lowest since January
The UK’s unemployment rate report for the three months ending July was also released on Tuesday, dropping to 4.1% from 4.2% in the last period, according to the Office for National Statistics. This was in line with analyst forecasts and was also the lowest unemployment rate since the three-month period to January this year.
The number of people without jobs fell to 1.44 million, a drop of 74,000. On the other hand, the number of people with jobs increased by 265,000, to 33.23 million, which was the highest rise in more than a year and a half. This was mainly because of an increase in full-time employment.
ADVERTISEMENTHaine said: “The UK economic inactivity rate also remains high at 21.9%, so effectively, more than a fifth of working age adults are either not working or, worse, not even looking for a job - something typically attributed to high long-term sickness rates as well as people studying or opting for early retirement.
“Job security is likely to remain a concern for workers as the winter months draw in, which is why keeping personal finances on track is vital for households to avoid being caught short, should the worst happen, and the main breadwinner loses their job.
“Building a robust emergency fund to cover any periods without earned income, paying down debt and even having income protection in place for those with no back-up source of funds are all ways to ease any financial fears for those worried about losing their job.”
