UK Pay Growth Drops to Lowest in Nearly 2 Years, Joblessness Falls

• British pay grew at its slowest pace in nearly two years, likely reassuring the Bank of England that inflation pressures are easing, and there was a surprise drop in unemployment, official figures showed on Tuesday.
• Average weekly earnings, excluding bonuses, were 5.4% higher than a year earlier in the three months to the end of June, down from 5.8% in the three months to May and the lowest since August 2022, the Office for National Statistics said. However, the jobless rate - based on a survey the ONS is currently overhauling - fell from 4.4% to 4.2%, its lowest since February, bucking expectations of a rise in a Reuters poll of economists.
• 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-three chance of a September BoE rate cut. Importantly, pay is still growing at nearly double the pace the BoE thinks is compatible with keeping inflation at its 2% target. Data on Wednesday is likely to show inflation back above target.
• "Today's data are consistent with a gradual and cautious dialling down of restrictive policy. But ... firming GDP growth, if sustained, could lead to a firming labour market recovery - which could result in a more shallow rate-cutting cycle," said Sanjay Raja, chief UK economist at Deutsche Bank.

(Source: Reuters)