UK pay growth cools, keeping BoE on track for another rate cut

LONDON (Reuters) -British pay growth cooled in the three months to July to a more than two-year low and employment shot higher, according to data on Tuesday which likely keeps the Bank of England on track to cut interest rates again before the end of the year.

British average weekly earnings, excluding bonuses, were 5.1% higher than a year earlier in the three months to the end of July, the Office for National Statistics said on Tuesday, matching the consensus in a Reuters poll of economists. It was the lowest reading since the three months to June 2022.

Sterling ticked higher against the dollar briefly on the back of the figures, which were broadly as expected, before settling back again.

When it cut interest rates on Aug. 1 after keeping them at a 16-year high of 5.25% for nearly a year, the BoE said it would continue to keep a close eye on wage growth. Investors see a roughly one-in-four chance of a September BoE rate cut.

Luke Bartholomew, deputy chief economist at asset manager abrdn said the data probably left the debate around the BoE’s future moves unchanged.

“There are still a few important data reports before the Bank needs to decide on interest rates again, but as things stand it is hard to see a cut next week. Instead, we expect the next cut to come in November,” he said.

The data showed Britain’s economy added 265,000 jobs in the three months to July – far more than expected by economists in the Reuters poll which had pointed to a 123,000 increase.

The ONS said the unemployment rate was 4.1%, slightly down from 4.2% in the three months to June, and its lowest since the three months to January 2024.