Wage growth has dropped to its lowest level in two years, showing that higher interest rates are taking a toll, according to Quilter Investors investment strategist, Lindsay James.
The Office for National Statistics said annual growth in employees’ earnings was 4.8 per cent in the three months to September, down from 4.9 per cent in the previous three months, the lowest level since June 2022.
James said: “ONS jobs data out this morning provides further evidence that higher interest rates are taking a toll.
"While the UK labour market is still managing to tick stubbornly along, both the unemployment rate and employee annual wage growth have seen an uptick.”
Annual growth in total earnings rose in the period to 4.3 per cent from 3.8 per cent, largely down to one-off civil service payments.
The UK’s unemployment rate also rose to 4.3 per cent in the three months to September, up from 4 per cent the three months prior.
James said this rise was bigger than expected. She added: “Despite the challenging circumstances of late, the unemployment rate had remained relatively stable in the UK, hovering closely around 4 per cent, but today’s figure bucks the trend slightly.
“However, the broader labour market has continued to cool, with the number of payrolled employees down 9,000 between August and September 2024, and up by just 136,000 annually from September 2023 to September 2024.”
Kevin Brown, savings specialist at Scottish Friendly, said the figures were positive for households who have been hit hard by the cost-of-living in recent years, but said it remains to be seen whether the wage growth is sustainable to the point families feel better off.
Brown added: “With GDP figures to be released on Friday and a largely flatlining economy, wage increases might lose momentum especially with many businesses beginning to feel pressure on their bottom lines.
“Of course, not all families will be feeling the benefit of wage increases. For those that are able to save into a rainy-day fund, even small amounts, it can make a real difference when facing unexpected costs.
"For anyone able to save for the longer-term, then with interest rates falling it might be time to consider investing for the potential to achieve greater returns."
tara.o'connor@ft.com
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