UK wage growth slowed to its slowest rate in two years, while unemployment rose to 4.3% in the three months to September, according to new figures from the Office for National Statistics (ONS).

The data, which revealed a mixed outlook for the labor market, dampened expectations of a further interest rate cut by the Bank of England next month.

Wage growth, excluding bonuses, averaged 4.8 percent over the quarter, slightly above analysts’ forecasts of 4.7 percent, but down from 4.9 percent in the previous period. Including bonuses, wages rose 4.3 percent, up from 3.9 percent in the previous quarter. Unemployment rose from 4% to 4.3%, while economic inactivity – those not working or looking for work – fell to 21.8%, the lowest level in almost a year.

Slowing wage growth and a modest rise in unemployment have economists speculating about the Bank of England’s next move. While the Bank recently cut interest rates by 25 basis points to 4.75%, some analysts now believe another cut in December is less likely, especially given Chancellor Rachel Reeves’ recent budgetwhich included a 6.7% increase in the minimum wage that could boost inflation in the short term.

The Bank of England’s chief economist, Huw Pill, commented on the data, pointing out that wage growth remains “sticky” at high levels, making it difficult to meet the Bank’s 2% inflation target. The Bank’s Monetary Policy Committee (MPC) has previously indicated that stabilizing wage growth is key to controlling long-term inflation.

Analysts at Nomura suggest the higher-than-expected wage figures could be “rogue” and part of a wider downward trend. If wage growth weakens in future reports, the Bank could resume cuts in February. However, markets currently expect rates to remain at 4.75% next month.

Despite the weaker data, sterling fell 0.39 percent against the dollar to $1.281, while the yield on 10-year British government bonds rose to 4.445 percent, reflecting market concerns about ongoing inflationary pressures .

The ONS’s director of economic statistics, Liz McKeown, advised caution when interpreting the data as recent improvements in data collection methods are still being stabilised. “Wage growth without bonuses fell again this month to the slowest rate in two years,” she noted, although bonuses hurt the numbers due to one-off payments in the public sector last year.

As the Bank of England monitors labor market trends, the current outlook suggests that inflation and wage dynamics will continue to play a crucial role in shaping future interest rate decisions.

Jamie Young

Jamie is an experienced business journalist and senior reporter at Business Matters, bringing over a decade of experience reporting on UK SME business. Jamie holds a degree in Business Administration and regularly attends industry conferences and workshops to stay on top of emerging trends. When not reporting on the latest business developments, Jamie is passionate about mentoring budding journalists and entrepreneurs, sharing his wealth of knowledge to inspire the next generation of business leaders.