Minimum earnings increase at a sluggish rate since last year

In a recent announcement, the unemployment rate has taken a significant dip, falling to 4.2% on both an annual and quarterly basis. This positive trend has been welcomed by many, particularly Sarah Coles, the head of personal finance at Hargreaves Lansdown, who sees it as a sign that more people have managed to escape the cost-of-living crisis and are now breathing a sigh of relief.

However, Ms. Coles also cautions that wages are not running as hot as they were, and we might have to contend with slightly higher inflation in the coming months. The annual growth rate of wages, including bonuses, has decreased from 5.7% to 4.5%, while the growth rate of average pay excluding bonuses has dropped from 5.7% between March and May to 5.4% in the three months to June.

The slowing wage growth could be an indicator that inflation is also slowing, as one of its biggest drivers gives up ground. This is good news for interest rates, as the pace of wage growth is now slower than what the Bank of England would find comfortable to lower interest rates. It seems highly likely that there won't be another rate cut in September.

Despite the slowing wage growth, employees may still have bargaining power due to the current labor market conditions. Vacancies remain 11% higher than in 2020, indicating a tight labor market. However, a hot labor market significantly contributes to rising prices, as seen in the continued high services inflation, driven by higher wages.

Ms. Coles acknowledges that there's plenty to celebrate in these figures, but for millions of people, it's all a bit premature. For those on lower incomes, the cost-of-living crisis still hasn't loosened its grip, and it's a struggle to make it to the end of the month.

The drop in annual wages including bonuses was higher than expected, partly due to the data accounting for NHS bonuses from the year before. This could suggest a more gradual recovery in wages, which might lead to stable or even decreasing savings interest rates depending on monetary policy.

In conclusion, the slowing wage growth and dipping unemployment rate are positive signs for the economy, but they also have implications for interest rates and inflation. As we move forward, it's essential to monitor these trends closely to understand their impact on the overall economic landscape.