UK wage growth slows less than expected, reinforcing the cautious interest rate stance of the central bank.

The cooling of wage growth in the UK is lower than expected, which reinforces the Bank of England's caution in faster interest rate cuts. The UK Office for National Statistics said on Tuesday that average earnings excluding bonuses rose by 4.8% on a year-on-year basis in the three months to September, just slightly lower than the previous 4.9%. While this figure is the lowest since mid-2022, economists had expected a larger decline to 4.7%. These data support the cautious approach taken by the Bank of England after its second interest rate cut this year last week. With potential price pressures still brewing, the Monetary Policy Committee has signaled that it is in no rush to further cut interest rates, leading traders to fully digest the expectation of only two 25-basis point rate cuts over the next 12 months. The closely monitored indicator by the Bank of England, regular wage growth in the private sector, remains unchanged at 4.8%, in line with the bank's own expectations. Officials believe that wage growth is still too high to be consistent with the 2% inflation target. Paul Dales, chief UK economist at Capital Economics, said, "There is little sign that the Bank of England needs to worry about the slack in the labor market and the slowdown in underlying wage growth coming to an end." The slowdown in fixed private sector wages over the past year "suggests that the Bank of England will continue to gradually cut interest rates." The unemployment rate has risen from 4% to 4.3%, higher than expected, but officials are cautious about interpreting the data due to issues with the response rate to the survey. Bank of England Governor Bailey and other officials are suddenly facing threats to their mission of price stability in various aspects, including the possibility of a trade war erupting after Trump's victory in the US election. The first budget from the Labour government has also cast a shadow over price and wage prospects, with Chancellor Rachel Reeves announcing increased public investment borrowing, another significant increase in the minimum wage, and a substantial increase in employers' national insurance contributions. Businesses may respond to the huge tax increases by reducing wage growth, laying off workers, or passing on costs to consumers. The Bank of England is uncertain about how businesses will respond, but notes that the current limited room for cost growth seems to be due to weak demand. Ana Andrade and Dan Hanson of Bloomberg Economics said, "The stickiness of private sector wage growth in September proves that the Bank of England's cautious accommodative policy is correct. With the recent budget further increasing the risks of pricing and wage setting behavior, we believe the Bank of England will continue to cut interest rates on a quarterly basis in the next year." While there is currently evidence of further slack in the labor market, with more people re-entering the workforce after being inactive, both employment and unemployment rates are rising. However, the UK National Statistics Office warns that these numbers are not entirely reliable due to issues with the labor force survey. The statistics from the UK National Statistics Office show that the number of people who are neither working nor looking for work has sharply decreased by 162,000 to 9.25 million, the lowest level in the three months to October 2023. This shift resulted in an increase of 220,000 in employment this quarter, with unemployment increasing by 50,000. The decrease in inactivity is due to a reduction in student numbers and a decrease in people who self-identify as not working to care for their families. Long-term illness unemployment decreased by 20,000, an issue the government is working to address. About 2.78 million people are unable to work due to chronic illness, an increase of 670,000 compared to pre-pandemic levels. The latest labor market data also show that household finances continue to be boosted by the recovery of real fixed wages, with earnings adjusted for inflation increasing by 2.7%, the lowest growth since the first quarter; job vacancies continue to decrease, indicating a slight easing of labor demand, with vacancies falling to 831,000 in the three months to October, slightly higher than pre-pandemic levels; total wage growth, including bonuses, unexpectedly strong, rising from 3.9% to 4.3%. While this is the first acceleration in six months, the figure is boosted by one-time bonuses for civil servants.