Average earnings excluding bonuses rose 5.7% in the three months through May, down from 6% in the period through April, the Office for National Statistics said Thursday. It was in line with the median expectation of economists.

Private-sector wage growth — which is being watched most closely by the BOE for signs of a tight labor market — slowed to 5.6% from 5.9%. Both were the weakest readings since 2022. Unemployment held at 4.4%, the highest rate since 2021.

“We continue to see overall some signs of a cooling in the labor market,” said Liz McKeown, ONS director of economic statistics.

Inflation and labor market figures this week complicate the decision facing BOE policymakers over whether underlying price pressures are easing fast enough to begin cutting interest rates from a 16-year high. While the jobs market is easing, services inflation — a key metric for the BOE — came in stronger than forecast in figures published Wednesday.

Traders responded to the wages data by adding to bets on the BOE cutting rates when officials meet on Aug. 1. They are now pricing in a 40% chance of a reduction, having scaled back bets to as low as 30% yesterday in the wake of the inflation data.

Officials have been watching the labor market for signs of price “persistence” as they gauge whether they cut rates without pushing inflation back above the 2% target.

What Bloomberg Economics Says…

-“The step-down in private sector regular pay growth in May will come as welcome relief to the Bank of England following June’s hotter-than-expected services inflation print. Our base case continues to be that the central bank eases in August, though we recognise that the decision between a hold and cut will be a very close call.”

—Dan Hanson and Ana Andrade, economists.

-Real regular pay rose 3.2% from a year earlier to match the peak seen around the financial crisis on a single month basis, a boost for household finances, but remained below the record levels seen during the pandemic

-There were also signs of a loosening labor market in vacancies data, with job openings falling below 900,000 for the first time in three years

-Employment rose 19,000 to 33 million in the three months through May, unemployment was up 88,000 to 1.53 million and inactivity – the number of 16 to 64-year-olds neither in work nor looking for a job – dipped by 21,000 to 9.38 million

-Redundancies fell by 13,000 to 98,000, bringing down the redundancy rate per thousand people. The number of long-term sick was 16,000 lower at 2.81 million

-The number of people employees on payroll in June rose just 15,513, less than a revised 53,697 increase in May

-“We doubt today’s encouraging wage data will be enough to offset concerns about the recent persistence of services inflation,” said Ashley Webb, UK economist at Capital Economics. “We have changed our forecast for the timing of the first interest rate cut from 5.25% from August to September, although it is a close call.”

June’s meeting minutes showed that the decision not to loosen policy was “finely balanced” for some, setting up a showdown between the Monetary Policy Committee’s hawks and doves next month.

Three of the central bank’s more hawkish rate-setters, including Chief Economist Huw Pill, recently signaled their reluctance to begin reducing rates from their highest level in 16 years.

The effects of the near-10% increase in the minimum wage likely continued to feed through to the figures in May. Some economists have noted that many employers may have only started paying the new rate in mid or late April, meaning the full effect would have not been seen until May.

While the BOE is monitoring the tightness of the labor market closely, the rate-setters are concerned about the accuracy of the official jobs data from the ONS after the flagship Labour Force Survey was suspended due to falling response rates.

The ONS is in the process of overhauling the survey but announced on Thursday that it is delaying the introduction of the new “transformed” figures from September until next year. There will be an update in the first quarter.