The latest data from the Office for National Statistics (ONS) found that annual wage growth in regular earnings (which excludes bonuses) was 6.6% in September to November 2023, while growth in total earnings (which includes bonuses) was 6.5% over the same period.
Accounting for inflation, this translates as real term pay growth of 1.4% and 1.3% respectively.
This has dampened the prospects of an imminent reduction in bank base rate, according to Derrick Dunne, CEO of You Asset Management.
He suggested that, with wage growth “well above the current rate of inflation” ‒ the consumer price index measurement was 3.9% in the 12 months to November ‒ and more than 900,000 unfilled job vacancies, there is little prospect of a rate cut.
“The Bank of England will be unlikely to pull the trigger on interest rate cuts until there are signs that wage growth has cooled even further,” he said.
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This was echoed by the EY ITEM Club, which argued that “nervousness” about a new year pay round and a big rise in the national living wage in the spring means the Bank of England may hold off on rate cuts until May.
Martin Beck, chief economic adviser to the ITEM Club, said this would give policymakers the time to “assess the implications of new year pay deals, as well as the direct and possible indirect effects of the near 10 per cent increase in the national living wage in April”.
Pushing the economically inactive into work
While there are more than 900,000 vacancies, the total figure dropped for the 18th consecutive period. The ONS reported this was the longest consecutive run of quarterly falls ever recorded, though pointed out that vacancies remain above pre-pandemic levels.
In addition, the employment rate increased marginally over the quarter to 75.8%, while the unemployment rate was largely unchanged at 4.2%.
Nichola Hyett, investment manager at Wealth Club, commented: “We suspect the cost of living crisis is playing a part, pushing those who previously fell into the ‘economically inactive’ bracket back into work.”
