Earnings Growth Remains Strong, But Shows Signs of Slowing

Main points

• Pay growth remains strong: The latest ONS estimates suggest that the annual growth rate of average weekly earnings, including bonuses, was 7.2 per cent in the three months to October 2023 while pay growth excluding bonuses 7.3 per cent. Despite showing signs of slowdown these figures remain among the highest annual regular pay growth rates recorded since comparable records began in 2001.
• We forecast wage growth to slow as the labour market continues to cool: economy-wide total pay (incl. bonuses) and regular pay are projected to grow at 6.2 per cent and 6.3 per cent, respectively, in the fourth quarter of this year. Our early forecast for the first quarter of 2024 sees these figures at 6.2 and 6.3 per cent, respectively.
• Private and public sector wage growth converges but is projected to widen again: the latest figures show regular pay grew by 7.3 per cent in the private sector and 6.9 per cent in the public sector in August to October. Our forecast indicates that regular pay for private and public sector will grow by 6.5 per cent and 4.7 per cent, respectively, by the end of the first quarter of 2024.
• The further fall in vacancies is driving the cooling of labour market conditions: while the unemployment and inactivity rates remain unchanged, it is the 45,000 fall in vacancies in the three months to November that is currently driving a cooling in the labour market. However, the unemployment to vacancy ratio remains steady at 1.4.

“Today's data show that average weekly earnings, excluding bonuses, rose by 7.3 per cent in August to October 2023 and by 7.2 per cent with bonuses, which is affected by one-off civil service bonus payments. While this remains high and well above historical averages, it has only recently started to outpace inflation. Taking price rises into account, total regular pay grew by 1.4 per cent and by 1.3 per cent including bonuses over the same period, meaning that workers have only recently seen their pay catch up with prices after a prolonged period of falling real wages. Furthermore, the experimental labour market data suggest that the unemployment rate remained unchanged at 4.2 per cent, while the number of job vacancies fell by 45,000 in the three months to November. Overall, these figures indicate that labour market continues to loosen at a slow pace and wage growth will remain elevated in the upcoming period."

Max Mosley
Senior Economist, NIESR

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