The biggest drop since Covid, as wage growth slows and job market weakens
According to the latest official data, wages have fallen the highest since payrolls in the UK labour market, with wage growth cooling and job openings continuing to decline.
HM Income and Customs data show that the number of payroll employees just exceeded 109,000 in May, the steepest monthly decline since May 2020. The annual decline is now 274,000. Since Rachel Reeves’ inauguration budget for in October, 276,000 wage employment has been signed, raising concerns that increased costs for employers, including £25 billion in national insurance donations this spring, are finding jobs.
The Office of National Statistics (ONS) also reported that wage growth is slowing. In the three months to April, average salary excluding bonuses rose 5.2%, down from 5.5% in the previous period and below analyst expectations. Including bonuses, wage growth rate was 5.3%, also down from 5.6%.
This cooling remains despite a 6.7% increase in minimum wages in April. Yael Selfin, chief economist at KPMG UK, said the figures suggest that wage pressures may be further alleviated this year as the economy develops at a rate. “This will limit workers’ bargaining power,” she added.
The UK’s unemployment rate also reached 4.6% in the latest quarter, the highest level since the back-clavicular rebound in 2021. As many companies appear to delay or freeze hiring, job openings fell by 63,000 to 736,000.
Liz McKeown, director of economic statistics at ONS, said feedback from companies shows that there is increasing hesitation to replace workers or hire new employees. “In the labor market, there are still weakening,” she said. “Some companies may back down.”
Still, wage levels are historically strong, especially in the public sector, where salaries rose by 5.6% compared to 5.1% in the private sector. “Now, the public sector pays more than the private sector,” McKean added.
The deteriorating work outlook could provide the Bank of England with reasons to further lower interest rates, especially after last week’s soft earnings and inflation data. Now that inflation has recovered 3.5% in April (the highest since January), the bank still faces pressure to balance cooling wage growth with stubborn price pressures.
James Smith, an economist at ING, said the data “helps cement” lower expectations for August and November. Rob Wood of Pantheon Macroeconomics agreed, noting that “the labor market is in a poor state in May, which could slow down the pace again in August”.
The market responded quickly. Sterling fell to $1.34 against the dollar, while the yield on 10-year gold plating fell to 4.56%. The FTSE 100 rose 0.48%, while the FTSE 250 rose 0.40%.
The figures are ahead of the spending review conducted by Rachel Reeves on Wednesday, and she is expected to outline the government’s daily spending over the next three years and outline capital investments over £100 billion.
With calls for increased funding for public services across the country from defense to welfare, the cost of borrowing in the UK remains high, and pressure on government economic strategy is growing.
New GDP figures are expected to show that the UK economy narrowed in April despite a 0.7% increase in the first quarter. If confirmed, this would heighten fears that the post-election honeymoon may be short-lived as the UK’s labour market begins to stagnate.
