Wage growth slips back as jobless rate hits highest since 2021 – ONS

UK earnings growth has eased back further as the rate of unemployment hit its highest level for more than four years but official figures also showed signs the jobs market may be stabilising.

The Office for National Statistics (ONS) said regular wage growth fell back to 4.7% in the three months to August, down from 4.8% in the previous three months, and hitting a fresh low of more than three years.

The jobless rate increased unexpectedly to 4.8% in the three months to August, up from 4.7% in the previous three months.

This is the highest since March to January 2021, at the height of the pandemic, although the ONS said the figure needs to be treated with caution as it continues to overhaul its labour market survey.

But it said there were signs of the jobs market downturn “levelling off”, with a rise in UK workers on payrolls – up 10,000 between July and August, following a minor increase the previous month, though early estimates signalled a 10,000 drop during September to 30.3 million.

Vacancies fell by 9,000, or 1.3%, to 717,000 in the quarter to September 30, which is the smallest decline since the three months to February.

ONS director of economic statistics Liz McKeown said: “After a long period of weak hiring activity, there are signs that the falls we have seen in both payroll numbers and vacancies are now levelling off.

“We see different patterns across the age ranges with record numbers of over-65s in work, while the increase in unemployment was driven mostly by younger people.”

The data also showed an upward revision to total wage growth including bonuses for the quarter to July, up to 4.8% from 4.7% in the previous estimate.

This is good news for pensioners, as it is a key figure for the pensions triple lock calculation and puts them on course for a 4.8% uplift in the state pension next year.

However, the latest data showed an overall picture of slowing wage growth, while the gap between earnings increases and inflation is also narrowing.

The ONS said real earnings growth, with the Consumer Prices Index (CPI) taken into account, fell back to 0.9% in the three months to August, which is the lowest level for two years.

Private sector pay growth also slowed to its lowest rate in nearly four years, at 4.4%, while public sector pay growth increased to 6% “reflecting some public sector pay rises being awarded earlier than they were last year”, according to Ms McKeown.

Meanwhile, the data revealed that there are now a record 1.7 million over-65s in employment in the quarter to August, up 6.7% on the previous quarter and 11.8% higher year-on-year.

Martin Beck, chief economist at WPI Strategy, said: “The latest UK labour market numbers suggest the jobs market may be stabilising after a period of softening.”

He added: “April’s rise in employer national insurance contributions and the sharp hike in the national living wage have clearly weighed on hiring, but figures over the summer suggest the worst of the damage is passing.

“Even so, the jobs market remains more fragile than at any time in recent years.”

Matt Swannell, chief economic adviser to the EY Item Club, said despite falling wage growth, the Bank of England will need to be convinced further that inflation pressures are easing before cutting interest rates again.

“We don’t expect the Bank of England to cut Bank Rate again until the first half of 2026,” he said.