Market Analysis

British pay growth slowed to a more than two-year low in the three months to July, while employment surged, according to Tuesday's data. This trend likely keeps the Bank of England (BoE) on track to reduce interest rates again before the year ends.

The Office for National Statistics reported that average weekly earnings, excluding bonuses, rose by 5.1% year-on-year for the three months ending in July, aligning with economists' expectations from a Reuters poll. This marks the lowest increase since the three months ending in June 2022.

Following the release, the pound briefly strengthened against the dollar but later retraced its gains.

When the BoE lowered interest rates on August 1, ending a 16-month period at a 5.25% high, it indicated that it would closely monitor wage growth. Market expectations suggest there is roughly a 25% chance of another rate cut in September.

Luke Bartholomew, deputy chief economist at asset manager abrdn, noted that the latest data is unlikely to shift the BoE's current stance significantly. "Several key reports are still awaited before the BoE's next decision, but as of now, it seems unlikely that a rate cut will occur next week. We anticipate the next reduction might come in November," he stated.

The data also revealed that the UK's economy added 265,000 jobs in the three months to July, surpassing the 123,000 increase predicted by economists in the Reuters poll. The unemployment rate fell slightly to 4.1% from 4.2% in the previous three months, reaching its lowest level since January 2024.

Paraphrasing text from "Reuters" all rights reserved by the original author.