Slower wage growth boosts case for Bank easing monetary policy

PAY growth slowed sharply in November, easing fears of an inflationary wage-price spiral and raising hopes that the Bank of England can cut interest rates sooner than expected.

Average earnings in the three months to November were up by 6.6pc, according to the Office for National Statistics.

This is the slowest pace of growth in regular pay since January 2023 and represents a sharper fall than economists had predicted – down from 7.9pc in the three months to August. In November alone, pay growth slowed to 5.9pc, the weakest annual growth rate since August 2022. A stark fall in bonuses meant that, once these are included, total year-on-year pay growth slowed to 6.5pc in the three months to November and 5pc for November.

Given that the headline rate of inflation is also falling across Britain, these latest pay figures mean the average worker should feel better off than they did a year ago. After adjusting for consumer prices, the ONS said average regular pay was up 1.4pc on the year – marking the fastest pace of real growth since September 2021, in the latest sign that the cost of living crisis is finally being reversed.

At the same time, the number of vacancies dropped to 934,000 from October to December, the lowest level since summer 2021.

This is still above pre-covid levels but the number of jobs available has been falling steadily since the peak of just over 1.3m in May 2022, indicating that the labour market is loosening. Policymakers at the Bank, led by Governor Andrew Bailey, have raised interest rates from 0.1pc to 5.25pc since December 2021, in the hope of bringing inflation back to their 2pc target. So far, CPI inflation has fallen from its peak of 11.1pc in October 2022 to 3.9pc in November, with economists increasingly anticipating a return to target in the first half of this year.

Yael Selfin, chief economist at KPMG UK, said: “The marked slowdown in pay growth will ease the Bank of England’s concerns of a potential wage-price spiral, which could lead to faster falls in inflation. Vacancies are also expected to fall further, which could see pay growth normalising towards levels consistent with the inflation target by the end of the year. This will likely bolster the case for interest rate cuts.” Jake Finney, economist at PWC UK, added: “Signs that the labour market is gradually normalising will reinforce the view that rate cuts could come as early as May.” This would offer a boost to borrowers.

Unemployment held steady at 4.2pc, with the number of people in work edging up a touch further above 33m, closing in on the record level seen just before the pandemic. However, the number of unemployed people also crept up to almost 1.5m.