Wage growth in the UK has fallen to its lowest level in more than two years, while unemployment has risen more than expected, according to data from the Office for National Statistics (ONS).

The ONS reported that average regular earnings growth slowed to 4.8% over the three months to September, down slightly from 4.9% in the previous quarter. This marks the lowest earnings growth since June 2022.

Despite the decline, pay is still growing faster than inflation. Adjusted for the Consumer Prices Index (CPI) inflation, wages increased by 2.7% during the same period.

Unemployment in the UK rose to 4.3% for the three months to September, up from 4% in the prior quarter and exceeding economists’ expectations of 4.1%. This represents the highest unemployment rate since May, though the ONS advised caution due to low response rates in its survey.

In more recent data, the number of people on payrolls decreased by 5,000 between September and October, totaling 30.4 million. Additionally, job vacancies dropped by 35,000 to 831,000 in the three months leading up to October.

Liz McKeown, ONS Director of Economic Statistics, commented: “Growth in pay excluding bonuses has eased to its lowest in over two years. Payroll numbers saw a slight decrease in September, though they are still higher year-on-year. However, interpreting short-term changes should be approached cautiously as data collection improvements continue to take effect.”

The sustained drop in wage growth has opened the door for interest rate cuts by the Bank of England, which recently lowered rates to 4.75% from 5%—its second cut this year. Meanwhile, concerns are growing among businesses over the impact of a national insurance increase for employers, announced in the recent Budget, on both jobs and consumer prices.

Major retailers like Asda, Sainsbury’s, and Marks & Spencer have indicated the change will significantly increase costs, which could put upward pressure on consumer prices.

Economist Gora Suri from PwC UK noted that this tax increase may also add pressure to wages. “If businesses pass some of these costs onto workers, it could restrain wage growth in the short to medium term,” he said.

ONS data also highlighted a decline in inactivity rates among those aged 16 to 64 who are not actively seeking work, dropping to 21.8% from 22.2% in the previous quarter.

Work and Pensions Secretary Liz Kendall said, “It’s positive to see real pay growth, but there’s more to be done to enhance living standards. From April, over three million of the lowest-paid workers will benefit from our increase to the national living wage.” Photo by Jim Goldsmith, Wikimedia commons.