Press release

12 Sep 2023 London, GB

A weaker jobs market, but few signs of any pay impact yet – EY ITEM Club comments

The previous resilience of the jobs market continued to recede in the latest data. But there were only limited signs that this is having any effect on pay growth, which remained heated across different measures.

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James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

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  • The previous resilience of the jobs market continued to recede in the latest data. But there were only limited signs that this is having any effect on pay growth, which remained heated across different measures.
  • As a result, the EY ITEM Club thinks the latest numbers don't change the likelihood of the Monetary Policy Committee (MPC) opting for another rate rise next week. But growing evidence of the adverse effect of policy tightening on the labour market is one factor which means interest rates should soon peak.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Whether a loosening in the jobs market will press down on pay growth sufficiently and quickly is a key question facing the MPC. The latest data offered few signs that is happening. Headline (three-month average of the annual rate) regular pay growth in the three months to July was 8.1%, the same as the previous three months. Private sector regular pay growth (the MPC's key metric as a driver of domestically generated inflation) slowed for the first time since the start of the year. But the decline, to 8.1% from 8.2%, was very modest and left the private sector measure still close to a record high. It also means the Bank of England's latest forecast, for a rise of 6.9% in Q3, is looking too low.

“Continued strength in pay came despite a rise in the Labour Force Survey (LFS) unemployment rate to 4.3%, 0.5ppt up on three months earlier and the highest in almost two years. The increase was more than accounted for by a sizeable fall in employment. Inactivity rose slightly, breaking the previous downward trend. Weakening labour demand was also evident in job vacancies dipping below the 1m mark for the first time since June 2021.

“It follows that the MPC faces a quandary between a jobs market that is clearly on the turn versus the inflationary impulse of still-strong pay growth. For sure, a range of forward-looking indicators, including the Bank of England's latest Decision Maker's Panel survey of corporate CFOs, recent Office for National Statistics (ONS) business insight surveys and data on starting salaries and pay settlements, all point to wage growth decelerating. But given the MPC's data-dependent approach, the EY ITEM Club thinks the latest numbers probably won't shift the likelihood of another increase in Bank Rate in next week’s meeting. However, the inflation release for August, due the day before the rate decision is announced on September 21, could affect that calculation.”