Wage growth slows as inflation expected to rise above 2 per cent in first increase this year

The Office for National Statistics (ONS) revealed that regular wage growth was 5.4 per cent year on year over the three months to June.

However, this slipped from 5.7 per cent in the previous three months and represented the smallest increase since the period to July 2022.

The data found that UK workers saw an average increase of 2.4 per cent once inflation was taken into account.

ONS director of economic statistics Liz McKeown said: “Basic pay growth, while remaining relatively strong, continues to slow.”

The ONS also said the rate of unemployment was 4.2 per cent over the three months to June, dropping from 4.4 per cent over the previous three months.

A consensus of economists had predicted an increase to 4.5 per cent for the quarter.

Chancellor Rachel Reeves said the “figures show there is more to do in supporting people into employment because if you can work, you should work”.

The Leeds West and Pudsey MP added: “This will be part of my Budget later in the year where I will be making difficult decisions on spending, welfare and tax to fix the foundations of our economy so we can rebuild Britain and make every part of our country better off.”

The figures also showed that zero-hours contracts remain at almost record levels, with more than a million people employed on one.

TUC general secretary Paul Novak said: “The Conservatives left the economy in disarray. And workers are still suffering the consequences with a million people on zero-hour contracts, high unemployment, falling vacancies and huge numbers of people unable to work because of long-term sickness.

“The New Deal for Working People will give all workers the urgently needed right to a secure contract, and it will help boost incomes across the economy.”

While wage growth slows, inflation is likely to rise again today, which highlights the battle facing the Bank of England to keep prices in check.

Economists expect official figures today to show that inflation rose above the Bank’s 2 per cent target in July, driven in part by holiday-related price rises for airfares and hotels.

Inflation hit a peak of 11.1 per cent in October 2022, after a sharp rise in energy prices sparked by Russia’s invasion of Ukraine.

That prompted the Bank to raise interest rates to a 16-year high of 5.25 per cent last year, which it only cut this month, in a quarter point drop to 5 per cent.

But governor Andrew Bailey struck a cautious tone on further cuts, and many economists believe rates will be kept unchanged when the committee next meets in September.

Catherine Mann, a ratesetter at the Bank, said in a recent interview that the UK should not be “seduced” into thinking inflation will stay low over the coming year.

Ms Mann said she is concerned that inflation could rise again soon, pointing to survey evidence that suggests companies expect to increase wages and prices.