Pay growth slows (slowly) as jobs market cools down

Real pay growth is slowing amid further signs that the labour market is cooling, while new Resolution Foundation analysis shows that while official data is under-estimating the UK’s real level of employment and blind-siding policy makers in the process, it said today (Tuesday).

The latest ONS data shows that real average weekly earnings growth has slowed from a robust post-pandemic high of 2.5 per cent in the three months to May 2024 to 2.4 per cent in the three months to June 2024. Looking at shorter term nominal pay measures, a key focus of the Bank of England, the Foundation notes that annualised quarter-on-quarter regular nominal pay growth in the private sector decreased to 7.2 per cent in the three months to June – still a high level.

The weakening of real wage growth from unsustainably high levels earlier in the year likely reflects the fact recent real wage growth had been outpacing productivity growth, says the Foundation. This trend of weakening wage growth will be disappointing for workers, but on the other hand it reduces the risk of pay rises fuelling inflation in the future.

Another key cause of weakening wage growth, alongside sluggish productivity rises, is a cooling jobs market. The level of job vacancies has continued to fall while HMRC payroll data suggests that the growth in employee jobs has slowed – rising by 41,000 over the three months to June, compared to 128,000 over the same period a year earlier.

But while headline employment, unemployment and economic inactivity data show a more mixed picture, with unemployment falling slightly on the quarter, employment steady and inactivity rising, new Resolution Foundation research published today shows that this data carries a major health warning, and may be significantly under-estimating the real level of employment in the UK.

Its analysis, using other labour market and wider population data, suggests that the current employment rate could conceivably even be unchanged from 2019 – at 76 per cent – rather than having fallen to 74.5 per cent, but more work will be needed by the ONS to give a definitive picture.

Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Workers’ pay packets continue to grow coming out of the cost-of-living crisis, but the recent strong real wage growth is running out of steam as productivity stagnates and the jobs market cools.

“While monetary policy makers may be less worried now about pay rises fuelling inflation, they should be concerned about the lack of reliable data on the wider state of the labour market.

“Official data is likely to be under-estimating the real level of employment in the UK, which could be close to a record high. This data failure is blind-siding monetary policy makers as they weigh up what to do on interest rates.”

Notes to Editors

Measuring Up? by Hannah Slaughter and Adam Corlett is available to read here.