UK Wage Growth Beats Forecasts as Worldwide Youth Unemployment Eases

UK wage growth far surpassed expectations this morning in the latest indication that the Bank of England’s fight against inflation is far from out of the woods. Against forecasts of a 4.6% print, average earnings excluding bonuses rose by 5.4% on an annualised basis over the three months to June.

The latest data therefore indicates that regular pay in the UK is now £645 a week.

While the figures exceeded forecasts, it nonetheless marked the slowest wage growth since August 2022, giving policy makers some reason to suggest that inflationary pressures from the UK’s labour market will continue to ease. This comes as real wage growth eased 10bps from 2.5% to 2.4% for regular pay excluding bonuses.

Annual growth including bonuses came in at 4.5%, with the ONS citing how, this figure is affected by comparing with a period including June 2023, when the NHS one-off bonuses were paid.

When looking at the disparity between the public and private sector, average wages grew at 6% for the former and 5.2% for the latter. (Again, here the ONS noted that “this is affected by the NHS one-off bonus payments made in June 2023, when we saw the largest annual total growth rate since comparable records began in 2001.”).

With the topic of wage growth being a key consideration of for the Bank of England, these figures will be closely evaluated by Threadneedle Street. During August’s monetary policy meeting for example, policy makers “discussed the latest accumulated evidence on the degree of persistence in pay growth and domestic price inflation.”

Here, they stated that “the continued downward trajectory in pay growth had been driven by the normalisation of short-term inflation expectations and some further easing in labour market tightness”.

Nevertheless, the extent to which wage growth beat expectations will undoubtedly present itself as another hurdle for the Bank of England, as focus turns to their future monetary pathway.

Data from the ONS this morning also indicates that the level of inactivity across the UK labour market is at its highest level since 2011.

This comes as more than 9.5m have been classified as economically inactive in the three months to June, meaning that they are not in work nor looking for a job.

Commenting on the data, the Chancellor Rachel Reeves said that “Today’s figures show there is more to do in supporting people into employment because if you can work, you should work.

Also commenting on the figures was the deputy director of the British Chambers of Commerce who said that “the focus must be on creating an education and training system that properly prepares young people for the world of work. It must help adults to return to work, stay in work, and continuously upskill and reskill for a rapidly changing workplace.”

The latest data on economic activity come as the estimated number of vacancies in the UK stands at 884,000. While this is a sizeable (13%) reduction from last year’ figures, it nonetheless indicates that there are 1.6 unemployed persons for each job vacancy.

Data from the International Labour Organization has shown that worldwide youth unemployment fell to a 15-year-low over the course of last year. This comes as “resilient economic growth” and a “strong rebound in labour demand” helped those entering the workforce following pandemic and post-pandemic uncertainty.

With just under 65 million people aged between 15 and 24 worldwide being unemployed last year, the ILO indicated that rates would continue to fall over the coming years. For example, they expect to see the global youth unemployment rate ease 20bps to 12.8% in 2024 and 2025.

While worldwide youth unemployment may be falling, the data suggested that the recovery was “not universal”, with rates rising across “Arab States, East Asia, and South-East Asia and the Pacific”.

They also noted that just 20% of young adults aged 25 to 29 manage to find a secure paid job in low-income countries.