Pay growth is cooling rapidly amid a murky outlook for employment

Private sector pay growth has almost halved in recent months, suggesting that higher interest rates are bringing about a turn in the labour market, the Resolution Foundation said today (Tuesday) in response to the latest data.

Headline nominal regular average weekly earnings grew by 7.7 per cent on the year – down on the previous months but still high by historic standards. Real earnings grew by 1.3 per cent.

However, the recent pay data hint at a sharper slowdown. Over the past three months, annualised private sector pay growth has almost halved from 10.5 per cent to 5.8 per cent, although this series is noisy. Recent RTI data show a similar trend – a high frequency measure of pay growth outside the majority-public sector industries has slowed from 8.2 per cent to 4.4 per cent over the past six months. Vacancies also fell for the 16th consecutive month, primarily in the private sector.

It’s not clear yet how this recent pay cooling is feeding through into the jobs market, with ONS data suggesting that both employment, unemployment and economic inactivity are largely unchanged. However, the experimental nature of this data, and the fact that RTI is subject to major revisions mean that the outlook for the jobs market is murky.

Nye Cominetti, Principal Economist at the Resolution Foundation, said:

“Beneath strong headline data, pay growth looks to be cooling rapidly in the private sector. A rapid cooling will reassure the Bank of England that rising rates are having their desired affected, though for workers it could mean that the recent period of rising real wages is ending soon.

“Data limitations mean that the outlook for jobs is murky. While vacancies keep falling, there’s no sign yet of a big rise in unemployment that some people fear.”