UK labor market softens in July, despite strong wage growth

Workers walk through the Canary Wharf financial district, ahead of a Bank of England decision on interest rate changes, in London, Britain, Aug 3, 2023. REUTERS/Toby Melville/File photo

LONDON  -Britain’s labor market showed more signs of cooling in the three months to July despite another month of strong pay growth, according to data that leave the Bank of England on track for a further interest rate hike next month.

The unemployment rate rose to 4.3 percent in the three months to July from 4.2 percent a month earlier, its highest since the three months to September 2021, the Office for National Statistics (ONS) said.

The unemployment rate is already higher than the 4.1 percent the BoE had penciled in for the third quarter as a whole, when it published its last set of forecasts in early August.

Employment dropped by a greater-than-expected 207,000 in the three months to July, the biggest such fall since the three months to October 2020, the data showed.

Wages continued to rise quickly, and above the rate of inflation – something which most investors think will prompt the BoE to raise interest rates again on Sept. 22, although perhaps for the last time in the current cycle.

British wages excluding bonuses were 7.8 percent higher than a year earlier in the three months to July – the joint-fastest rate since ONS records began in 2001 and in line with economists’ forecasts in a Reuters poll.

Pay growth including bonuses rose by more than expected, up 8.5 percent compared with the 8.2 percent consensus for the three months to July. Adjusting for consumer price inflation, it marked a 0.6 percent gain – the first since March 2022.

“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation,” finance minister Jeremy Hunt said.

The pound showed little reaction to the data.