The UK unemployment rate unexpectedly falls as wage growth slows

Britain’s unemployment rate has unexpectedly fallen, while wage growth continues to rise at the slowest pace in two years, the latest figures from the Office for National Statistics (ONS) show.

Data for July showed the unemployment rate fell to 4.2%, defying economists’ predictions of a rise to 4.5% from the 4.4% recorded in the previous month. The decline in unemployment is generally seen as a positive economic indicator, potentially leading to upward pressure on wages.

Despite this, wage growth excluding bonuses slowed to 5.4% in the three months leading up to June, down from 5.8% a month earlier. While this represents a significant increase in wages, it is the slowest pace of wage growth in two years. Adjusted for inflation, wages rose 3.2%, providing some relief for workers facing rising costs of living.

The slowdown in wage growth was in line with economists’ expectations and is unlikely to change the current interest rate outlook. The Bank of England is widely expected to maintain interest rates at 5% when the Monetary Policy Committee meets in September, although upcoming economic data could influence this decision.

High interest rates have made borrowing more expensive, and while markets don’t expect any immediate changes at the moment, upcoming data on economic growth and inflation will be closely watched.

However, the ONS warned against over-interpretation of the latest labor market figures, noting that they need to be revised.

Matthew Percival, Director of Future of Work & Skills at the Confederation of British Industry (CBI), highlighted the persistent problem of economic inactivity, especially among the 2.8 million long-term sick people. He emphasized the need for business-government collaboration to improve worker health, and suggested that tax incentives for worker health programs could play a crucial role.

Percival added: “At the autumn budget, the government has the opportunity to make a meaningful impact by taking action on the tax incentives for workers’ health. Making the Employee Assistance Programs completely tax-free would complement the government’s Back to Work plan by preventing people from becoming economically inactive in the first place. Our analysis suggests that every £1 invested in this measure could deliver £10 to the economy.”