UK wages rise 3.7% year on year, but job vacancies fall

The pace of wage growth in the UK has picked up slightly. According to the Office for National Statistics (ONS), average weekly earnings (excluding bonuses) in the three months to August were 3.7% higher than a year earlier.

Wage growth slightly above forecasts

The result is slightly better than the forecasts of economists polled by Reuters, who had expected 3.6%. Figures for the three months to July were revised up slightly, to 3.6%.

According to the source, this is another stage of gradual growth after the low of 3.4% at the beginning of this year. In the private sector, wages grew by 3%, compared with 2.9% previously. This is the first acceleration in that sector since the end of 2024.

The labour market remains weak

The ONS data also show weaker demand for workers. The number of vacancies in the three months to September fell to 691,000, from 704,000 in the period to August. For the first time since the period ending in April 2021, the figure fell below 700,000. This is the lowest level since 2014, excluding the pandemic.

According to the ONS, the fall mainly affected smaller firms, which are feeling the effects of higher labour costs.

Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said that the continuing fall in vacancies is a warning sign for the labour market. In his view, economic growth driven by artificial intelligence is weakening demand for new workers, and high employment costs are making the situation worse.

What about interest rates

The data could be an argument for the Bank of England to raise interest rates. The Bank is to assess whether the energy price shock caused by the war in Iran is turning into broader inflationary pressure, partly through demands for higher pay.

Investors expect the Monetary Policy Committee to raise the main rate to 4% at its November meeting. So far, unlike the US Federal Reserve and the European Central Bank, the Bank of England has not opted to raise the cost of borrowing.

What this means for you

The rise in wages relates to average earnings across the whole economy and does not mean a pay rise for every employee. The fall in the number of job vacancies may make it harder to change jobs, especially at smaller firms. A possible interest rate rise could affect the cost of loans, including mortgages, but for now it is only an expectation of investors.