Wages Grew by Nearly 8 Per Cent in Q3 And Are Expected to Grow by 7 Per Cent in Q4

Main points

• The latest ONS estimates suggest that the annual growth rate of average weekly earnings, including bonuses, was 7.9 per cent in the third quarter of 2023 while pay growth excluding bonuses 7.7 per cent – remaining among the highest annual regular pay growth rates recorded since comparable records began in 2001.Our forecast for the fourth quarter of this year sees economy-wide regular pay growing at 6.9 per cent and total pay growth at 7.1 per cent.
• Private sector regular pay grew by 7.8 per centin the third quarter of 2023 while regular pay in the public sector grew by 7.3 per cent. Our forecast sees these figures at 7.2 per cent and 5.1 per cent, respectively, in the fourth quarter this year.
• Due to data collection issues affecting the ONS Labour Force Survey (growing attrition in the survey response rate), today’s release only contains traditional measures of earnings, vacancies and HMRC data. The ONS has released experimental estimates on UK employment, unemployment and economic inactivity, derived using growth rates from PAYE. While these experimental estimates can help give us an idea of where the values are, in the absence of LFS data, our understanding of these variables remains incomplete and uncertain.
• With the unemployment rate remaining unchanged on the quarter, it is decreasing vacancies that are contributing to a gradual loosening of the labour market. Regardless of where the unemployment rate is exactly, we know that an unemployment rate around 4.2 per cent paired with a total number of vacancies of 957,000 remains well above the series average of the vacancy-to-unemployment ratio of just under 0.4. As a result, the labour market remains tight by historical standards, enabling high wage growth.

“Average weekly earnings, excluding bonuses, grew by 7.7 per cent in the third quarter of 2023 and by 7.9 per cent if we include bonuses – though the latter figure is affected by one-off civil service bonus payments. While both figures remain high relative to their respective historical average growth rates of 3.2 and 3.1 per cent, when we adjust for inflation, today’s figures drop to 1.3 and 1.4 per cent, highlighting the extent to which elevated inflation continues to harm households. Today’s experimental data suggest that the UK unemployment rate was largely unchanged on the quarter at 4.2 per cent, while vacancies fells by 58,000 in the three months to October; these data indicate that the labour market continues to loosen at a slow pace, leading us to expect that wage growth will remain historically elevated in Q4.”

Paula Bejarano Carbo
Associate Economist, NIESR

See our previous Tracker to follow the analysis