OddsFrontUK earnings growth cools to 3.9% as energy shock complicates Bank of England decision
A weakening labour market is pulling pay growth lower just as expensive oil creates a renewed inflation risk for households and policymakers.
Pay growth loses momentum
Growth in total UK earnings, including bonuses, slowed to 3.9% in the three months through July, according to official labour-market figures released on September 15. The comparable rate for the three months through June was 4.1%. Regular pay growth, which excludes bonuses, remained at 3.5%. The figures show that wage pressure is easing, although workers still face uncertainty over how much of their increase will be absorbed by rising prices.
Hiring indicators remain subdued
The unemployment rate stayed at 4.9%, while the number of vacancies declined to 702,000 in the three months through August from 706,000 in the preceding period. Payroll employment also continued to edge lower, with retail and hospitality among the sectors contributing to the decline. Together, these measures indicate that employers are becoming more cautious even though the economy has recently performed better than many forecasts anticipated.
The Bank faces opposing pressures
A cooling jobs market would ordinarily strengthen the case for keeping borrowing costs steady or eventually reducing them. The external inflation picture is moving in the opposite direction. Oil has traded above $107 a barrel amid the Middle East conflict, raising transport and energy costs. Investors broadly expect the Bank of England to leave its benchmark rate at 3.75% at Thursday's meeting, but the renewed energy shock makes its guidance particularly consequential.
Pensions and household income
The 3.9% earnings figure is also likely to influence the next increase in the state pension. Under the triple-lock formula, payments rise by the highest of average earnings growth, consumer-price inflation or 2.5%. The final outcome therefore depends on the inflation measure used in the calculation. For working households, the central question is whether nominal wage gains can remain ahead of prices if higher fuel costs spread through supply chains.
What comes next
The next immediate test is the release of August inflation data, followed by the Bank's rate announcement. Policymakers must judge whether weaker recruitment will contain domestic price pressure or whether imported energy inflation requires a firmer stance. Businesses will watch the Bank's projections for wage growth and unemployment, while households will focus on the combined effect of interest rates, fuel prices and the eventual pension adjustment.