“Today’s data will provide the Bank of England with further evidence that its cautious approach to monetary policy remains the most appropriate path. Pay growth continues to show little sign of generating significant inflationary pressure, while wider labour market conditions appear to have bottomed out. With underlying wage pressures remaining contained, there is little reason for the Bank of England to shift course, and we expect rates to remain on hold for the remainder of the year.
“Unemployment remained unchanged at 4.9% in the three months to June. Although hiring intentions have improved somewhat in recent months, labour demand remains weak by historical standards. A more sustained recovery is likely to depend on geopolitical uncertainty easing. Businesses may also remain hesitant ahead of the Autumn Budget as they assess the potential implications of any tax changes.
“Headline pay growth increased to 3.5%, though this was driven by a rise in public sector wages. Private sector pay growth, which is a more accurate reflection of underlying labour market conditions, slowed to 2.8%. Although earnings growth has been on a downward trend since the start of the year, the pace of moderation is expected to slow as labour market conditions begin to stabilise. Additionally, there appears to be little risk of a renewed acceleration in pay as workers' bargaining power remains constrained by a relatively soft labour demand. Higher prices are also likely to outpace wage growth over the coming months, leaving workers facing a squeeze on real incomes.”
