By Joshua Kirby
U.K. wages rose at a slower pace in September, opening the way for further rate cuts from the Bank of England.
The BOE last week lowered its key interest rate for a second time this year, and said more cuts were likely if inflation shows signs of settling at its target. The bank nevertheless stressed that those moves were likely to be gradual in the face of uncertainties about the outlook for the world economy as Donald Trump prepares for his second U.S. presidency, and the impact of the new U.K. government's budget plans.
Average U.K. weekly earnings, not including bonuses, were 4.8% higher on year over the three months to September, slowing from a 4.9% rise in the previous period. That was a little above the expectations of economists polled by The Wall Street Journal, but still represents the slowest rate of increase since the second quarter of 2022, the Office for National Statistics said Tuesday. The unemployment rate rose to 4.3% over the period, adding to signs of loosening in the U.K. jobs market.
"Job vacancies have fallen again, as they have been doing for more than two years now," ONS statistics director Liz McKeown said. Vacancies nonetheless continue to trend slightly above the prepandemic period, she said.
Rapid salary growth has proved a concern for BOE policymakers, who see a link between fuller pay packets and stubbornly high rates of inflation in the opening months of this year.
But price rises have cooled over recent months, allowing rate setters to lower borrowing costs for the first time in more than four years at their August meeting. That process has been gradual, with policymakers trimming the key rate by a slim quarter-point last week.
The bank still has some way to go before it claim victory against inflation, BOE chief economist Huw Pill said Tuesday. "As we saw in [Tuesday's] labor market data, pay growth remains quite sticky at elevated levels and levels that are hard to reconcile with the target."
Slowing wage growth nevertheless keeps the bank on course, said Luke Bartholomew, deputy chief economist at Abrdn.
"For now, there is nothing to shift the bank away from its plan of gradual rate reductions," Bartholomew said.
Investors expect policymakers to leave the key rate unchanged at their final meeting of the year in December, according to LSEG Refinitiv data, though that could change if price rises in the meantime lose more heat than forecast.
Signs of further cooling in pay hikes and price rises could induce the BOE to cut rates more aggressively, Governor Andrew Bailey has said. But Trump's election win brings the threat of higher tariffs on British exports and more uncertain geopolitics. Bailey said last week the bank would adapt to any announced changes in Washington's trade policy.
"There are a lot of risks attached to the fragmentation of the world economy," the governor said. "It matters for us."
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
11-12-24 0717ET
