Wage growth in the UK has slowed to its lowest level in over two years, even as unemployment unexpectedly decreased, according to new data from the

Office for National Statistics (ONS).

The ONS reported that regular wages grew by 5.4% year-on-year in the three months leading up to June. This marks a decline from the 5.7% growth observed in the previous quarter, representing the smallest wage increase since July 2022.

After adjusting for inflation, UK workers experienced an average wage increase of 2.4%.

Liz McKeown, the ONS's Director of Economic Statistics, commented, "While basic pay growth remains relatively strong, it is continuing to slow. Growth in total pay has notably decelerated, partly due to the comparison with last year’s one-off NHS bonuses."

The data also revealed that the unemployment rate fell to 4.2% during the three months to June, down from 4.4% in the previous quarter. Economists had anticipated an increase to 4.5% for the period.

The ONS noted a widespread decrease in unemployment among Britons over the age of 25. Additionally, the data pointed to a “modest increase” in employment during the quarter, signaling positive momentum in the UK labor market.

According to the ONS, the number of payrolled employees in the UK rose by 14,000 between May and June 2024. However, McKeown cautioned, "The medium-term picture remains somewhat subdued, with the employment rate still lower than a year ago, and the growth rate in the number of payrolled employees has slowed over the year."

The report also highlighted a continued decline in vacancy rates, indicating ongoing challenges in the UK jobs market. The number of vacancies fell by 26,000 to 884,000 in the three months to June.

Chancellor Rachel Reeves responded to the figures, stating, "Today's data shows there's more work to be done in supporting people into employment. If you can work, you should work. This will be a key focus in my upcoming Budget, where difficult decisions on spending, welfare, and tax will be made to strengthen our economy and improve living standards across the country."

Hannah Slaughter, a senior economist at the Resolution Foundation, observed, "While workers' pay has been increasing as the cost-of-living crisis eases, the recent strong real wage growth is losing momentum due to stagnant productivity and a cooling jobs market. Monetary policymakers may be less concerned about wage rises driving inflation now, but they should still be worried about the lack of reliable data on the overall state of the labor market."

Economists suggest that the Bank of England may hold interest rates at 5% this month—following a reduction in August—due to continued wage growth, with further rate cuts possibly resuming later in the year.

James Smith of ING remarked, "Officials are likely to overlook the recent drop in the unemployment rate due to concerns about the data, but persistent wage growth suggests the Bank will keep rates on hold in September before considering rate cuts at their November meeting."