Jobless rate declines to 4% in the three months to June, the lowest since the winter of 1975

Pay growth in Britain has slowed to its weakest in almost a year despite a fall in the jobless rate to a fresh 43-year low and the biggest annual drop in workers from the EU since modern records began more than two decades ago.

Figures from the Office for National Statistics (ONS) showed wage inflation cooling in the second quarter of 2018 even though unemployment fell from 4.2% to 4.0% – its lowest level since the winter of 1974-5.

The trend in earnings confounded predictions from the Bank of England that a tighter labour market would intensify pay pressures and brought Threadneedle Street’s decision to raise interest rates earlier this month under fresh scrutiny.

The Bank’s monetary policy committee cited upward pressures on earnings as the main reason for hiking the cost of borrowing to 0.75% earlier this month, but the latest official figures showed both the main measures of earnings – for total pay and for pay excluding bonuses – fell back.

The annual growth rate of total pay dipped from 2.5% to 2.4% while regular pay growth eased from 2.8% to 2.7%, even though the number of unfilled vacancies stood at 829,000 and there was a fall of 86,000 in the number of EU nationals working in Britain.

Real pay – average weekly earnings adjusted for inflation – edged up 0.1% including bonuses, and rose by 0.4% excluding bonuses, compared with a year earlier, the ONS said.

In June alone, regular pay was £488 a week before tax and other deductions, up from £474 a year earlier. Average total pay, including bonuses, rose to £518 a week from £507 a week.

The ONS numbers also showed there were 780,000 people on zero-hours contracts in their main job, 104,000 fewer than a year earlier. The sector showing the largest annual fall in the number of people on zero-hours contracts, in which employees are not guaranteed a minimum number of work hours, was in the health and social work sector which recorded a decline of 62,000.

Senior ONS statistician Matt Hughes said: “For the first time since we started tracking zero-hours contracts, we’ve seen a substantial fall in the number of people on one in their main job.”



He added: “The growth in employment is still being driven by UK nationals, with a noticeable drop over the past year in the number of workers from the so-called A8 eastern European countries in particular.”

The number of people from those countries – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia – employed in Britain has fallen steadily by nearly 6,000 since the start of this year, the ONS figures show.

Suren Thiru, head of economics at the British Chambers of Commerce, said: “Achieving sustained increases in wage growth remains a key challenge, with sluggish productivity, underemployment and the myriad of high upfront business costs weighing down on pay settlements. As such, there remains precious little sign that wage growth is set to take-off – undermining a key assumption behind the monetary policy committee’s recent decision to raise rates.”



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Chris Williamson, chief economist at data firm Markit, said: “The disappointing pay trend runs counter to expectations at the Bank of England and, alongside signs of the economy losing some momentum again at the start of the third quarter, will add to suspicions that interest rates will not rise again in the immediate future, and most likely not until a smooth route through the Brexit process becomes apparent.

Unemployment declined by 65,000 on the quarter to 1.36 million.. The number of people in work increased by 42,000 from the previous quarter to just under 32.4 million - the slowest quarterly growth since the autumn of 2017.

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Secretary of state for work and pensions Esther McVey said: “With the unemployment rate falling further to just 4%, and youth unemployment down over 45% since 2010, school leavers this week can look forward to a growing jobs market, improving the prospects for their future careers.”

The Resolution Foundation thinktank noted that the three sectors with the fastest pay growth were construction, financial services and insurance, and hotels and restaurants, while real pay fell in a number of other areas including health and social work, utilities, agriculture and the arts.