UK state pension on track to rise 4% under triple lock; grocery inflation falls

State pension on track to rise 4% due to wage increases

Newsflash: UK wage growth has slowed… but pensioners on the new state pension should still be guaranteed an increase of around £460 next year.

The latest UK labour market statistics, just released, show that total pay (including bonuses) rose by 4% in the May-July quarter.

And under the UK’s triple-lock pension pledge, that indicates that the new state pension should also rise by 4% next year.

That would lift the new state pension – currently £221.20 per week – up to around £230 per week, an increase of almost £9 a week from next April.

On an annual basis, it would increase the new state pension from £11,502.40 per year to £11,962 per year, an increase of £460 a year.

The final decision on the state pension will be taken by the secretary of state for work and pensions, Liz Kendall, before October’s budget. But chancellor Rachel Reeves has already pledged the government’s backing of the triple lock until the end of this parliament.

Pay excluding bonuses grew by 5.1% in the year to May to July 2024; including bonuses it was up 4.0%, though this comparison is affected by last year’s NHS and civil service one-off payments.

Read Labour market overview ➡️ https://t.co/LADdyoefyv pic.twitter.com/So7ERyAv1Q

— Office for National Statistics (ONS) (@ONS) September 10, 2024

Key events

Jefferies economist Modupe Adegbembo predicts the Bank of England will resust cutting interest rates again until November, especially following the rise in people finding work in May-July.

Adegbembo explains:

This month’s labour market data showed that wages continue to ease, but at the same time employment jumped by 265k — the largest increase in over two years. We think the reliability issues with the Labour Force Survey (LFS) mean the Bank of England (BOE) will not place much weight on the bounce in employment, but it should kill any lingering expectations of a September rate cut.

We continue to expect the BOE to cut next in November by 25bp, but the labour market showing signs of tightening whilst growth is rebounding makes it very hard to see the BOE delivering anything faster than quarterly cuts, even though some on the Monetary Policy Committee (MPC) may want to.

Falling inflation means that UK workers still received a welcome real-terms income boost this summer, even though wage growth slowed.

So says Louise Murphy, senior economist at the Resolution Foundation:

“While wage growth continues to weaken, even faster falling inflation over the summer means that workers have enjoyed long overdue real-terms pay rises of 2.2%. This is the kind of healthy wage growth we took for granted before the financial crisis, but haven’t seen since.

“Workers’ income boosting pay rises this summer will also deliver an income boost for pensioners next Spring, as they will drive a £460 increase in the State Pension via the Triple Lock.

“But unless we see a marked increase in productivity, this honeymoon period of real wage growth is unlikely to last for long.”

Youth unemployment hits three-year high

Youth unemployment across the UK has hit its highest level in over three years, in a sign that young people are struggling to enter the labour market.

Today’s jobs data shows that the unemployment rate among 18-24 year olds jumped to 13.3% in May-July, up from 12% in April-June, on a seasonally-adjusted basis.

That’s the highest reading since December-February 2021.

The increase suggests that as the academic year ended, some students were unable to find work.

TUC general secretary Paul Nowak says:

“Working people are still facing major problems left behind by the Conservatives.

“Vacancies have been falling for more than two years. Millions of workers are in insecure jobs and without proper employment rights. And young people’s futures are on the line as youth unemployment rises.

“Most employers support the new government’s plans to make work pay and strengthen workers’ rights. It’s time to move on from the low-pay, low-rights approach that has failed so many people so badly.”

Grocery inflation falls to 1.7%

Good news for shoppers – grocery inflation has fallen.

Data provider Kantar reports that annual grocery price inflation was 1.7% in the four weeks to 1 September, down from 1.8% last month.

That will ease some of the pressure on household budgets – but even so, Kantar also flags that nearly 60% of UK households are worried about the rising cost of their shopping

Fraser McKevitt, the researcher’s head of retail and consumer insight, says:

“This is their second biggest financial worry, only behind home energy bills.”

Kantar reports that prices are fastest for vitamin and mineral supplements, chilled fruit juices and chocolate confectionery.

But toilet tissue, dog food and bottled cola drinks are among the items whose price is falling.

Kantar also reports that online supermarket Ocado was again the fastest growing grocer with sales up 12.9% year-on-year in the last monthr.

Tesco’s sales rose by 5.3%, while Sainsbury’s grew 5.7%.

Asda struggled, though, with a 5.6% fall in sales last month – adding to the pressure on the company after a poor summer.

We also have a slowdown in real wage growth – or how fast pay packets increased after inflation.

Using CPI real earnings, regular real pay (excluding bonuses) rose by 3.0% on the year, lower than the previous three-month period when it was 3.2%, the Office for National Statistics reports.

Total real pay (including bonuses) rose by 1.9% on the year in May to July 2024.

Analyst: Pensioners won’t feel richer

While the government may be handing pensioners an increase in the state pension with one hand, it is taking away the winter fuel allowance from around nine million pensioners with the other.

That controversial decision to means-test the winter fuel payment means only poorer old people – who get pension credit – will still receive it.

So much of the increase in the state pension will be eaten away by that move, and by rising prices in the shops.

Myron Jobson, senior personal finance analyst at interactive investor, explains:

“It is all but confirmed that the state pension will rise in line with average earnings, as the headline inflation figure for September is not expected to come in higher.

“While the £460 increase in the state pension may seem like a welcome boost on the surface, many pensioners won’t feel any richer thanks to the double whammy of inflation, which continues to erode the real value of any pension increment, and the loss of the £300 Winter Fuel Payment, which is now means-tested.

“Our calculations offer a stark reminder that while the state pension is a vital component of retirement income, it falls short of covering even the minimum income needed to enjoy a comfortable retirement. Worryingly, our research has exposed a looming national pension emergency, with people at the crunch stage of their retirement planning not saving enough into their pensions to secure a comfortable living standard in retirement.

Monica George Michail, NIESR Associate Economist, has spotted that wage growth in the services sector slowed in the quarter.

Today’s ONS figures indicate that wage growth continues to ease, recording 5.1 per cent in the three months to July (4.0 per cent including bonuses).

Most notably, services sector pay growth has fallen faster than expected, recording 3.8 per cent, compared to an average of 5.9 per cent in the first five months of this year. This is positive news for inflation and might provide the Bank of England with increased confidence regarding interest rate cuts”.

However, a cut might not come as soon as the BoE’s next meeting, in two week’s time.

The City money markets indicate there’s a 78% chance that the Bank leaves interest rates on hold, at 5%, and only a 22% prospect of a cut to 4.75%.

Vacancies also continue to fall.

Today’s labour market report estimates that the number of vacancies in the UK decreased by 42,000 in June to August, to 857,000.

That’s the 26th quarterly fall in a row – but there are still more vacancies across the economy than before the Covid-19 pandemic:

There were 857,000 job vacancies in June to August 2024, down 42,000 on the quarter and 143,000 on the year. It is still 61,000 above pre-#COVID levels, though. pic.twitter.com/m6fYlkJA2w

— Office for National Statistics (ONS) (@ONS) September 10, 2024

UK payrolls dip in July and August

The number of workers on payrolls fell in the last two months – a sign that the jobs market may have cooled a little in July.

The ONS estimates that the number of payrolled employees in the UK decreased by 6,000 between June and July 2024.

But on an annual basis, payrolls were 203,000 higher than in July 2023 .

And in August, the ONS’s early estimate is that payrolled employees decreased by 59,000 month-on-month.

The revised estimate of employees on the payroll in July 2024 was down 6,000 on the month. The provisional estimate for August 2024 was down another 59,000. pic.twitter.com/ZtyVWOJudt

— Office for National Statistics (ONS) (@ONS) September 10, 2024

Economic inactitvity dips, but still a problem

The number of people classed as economically inactive has dropped, but remains near record levels.

There were 9.298m people neither in work nor looking for a job in May-July, a drop of 136,000 in the quarter.

That has pulled the inactivity rate down to 21.9%, from 22.2% last month.

The ONS says:

The quarterly decrease in economic inactivity was mainly caused by those who are inactive because they are students, long-term sick, or retired. These decreases were partially offset by increases in those who are economically inactive because they are discouraged workers (meaning that they are eligible for employment but unemployed and not seeking work) and those inactive for “other” reasons.

Yesterday, Work and Pensions Secretary Liz Kendall held a meeting with labour market experts to discuss how to tackle economic inactivity – which the government calls ‘greatest employment challenge for a generation’.

Yael Selfin, chief economist at KPMG UK, fears the problem will not be solved fast:

“The high level of inactivity is expected to persist in the near term, as the number of long-term sick and the backlog in NHS waiting lists are likely to remain elevated. That could put pressure on the economy if demand recovers unexpectedly strongly.

UK unemployment rate drops

Today’s UK jobs report also shows that the unemployment rate has fallen to 4.1% for the May to July quarter.

That’s down from 4.2% in April-June.

During the quarter, unemployment fell by 74,000 people to 1.437 million.

And employment rose in the quarter – it’s up by 265,000 to 33.232 million, to 74.8% of the population.

Headline indicators for the UK labour market for May to July 2024 show:

Employment was 74.8%
Unemployment was 4.1%
Economic inactivity was 21.9%

— Office for National Statistics (ONS) (@ONS) September 10, 2024

Jamie Jenkins, Director of Policy at Royal London, says:

“With inflation having reduced, the ‘triple lock’ will return to wage growth as the highest measure, and this should drive a 4% increase to the State Pension from April 2025.

“The government has committed to retaining the triple lock for now, ensuring that the State Pension rises each year by the highest of average wages, inflation or 2.5%.

“Inflation drove an 8.5% increase in April 2024 and, although the 2025 increase will be lower, it still serves to ensure those in receipt of the State Pension get the best of three measures, keeping pace with wages this year, and exceeding inflation at its current level.

“However, recent data obtained by Royal London found that only half of the 3.5 million recipients of the new State Pension were paid the full weekly amount of £203.85 last year, due to gaps in their National Insurance record. Until April 2025, those who are entitled to the new State Pension may be able to fill in the gaps going back to 2006.

The BBC’s Faisal Islam has also calculated the likely increase in the state pension:

NEW

Latest average earnings data for 3 months to July – up 4% (including bonuses)… which points to a £461 rise in the full new state pension (for post 2016 retirees) to £11963 under the triple lock policy pic.twitter.com/hlWdLpy7rw

— Faisal Islam (@faisalislam) September 10, 2024

Basic pay (stripping out bonuses) rose by more than total pay in the last quarter.

The Office for National Statistics reports that average regular earnings (excluding bonuses) in Great Britain grew by 5.1% in May to July.

However, it’s the total pay increase (4%) which is usually used to set the triple lock.

State pension on track to rise 4% due to wage increases

Newsflash: UK wage growth has slowed… but pensioners on the new state pension should still be guaranteed an increase of around £460 next year.

The latest UK labour market statistics, just released, show that total pay (including bonuses) rose by 4% in the May-July quarter.

And under the UK’s triple-lock pension pledge, that indicates that the new state pension should also rise by 4% next year.

That would lift the new state pension – currently £221.20 per week – up to around £230 per week, an increase of almost £9 a week from next April.

On an annual basis, it would increase the new state pension from £11,502.40 per year to £11,962 per year, an increase of £460 a year.

Pay excluding bonuses grew by 5.1% in the year to May to July 2024; including bonuses it was up 4.0%, though this comparison is affected by last year’s NHS and civil service one-off payments.

Read Labour market overview ➡️ https://t.co/LADdyoefyv pic.twitter.com/So7ERyAv1Q

— Office for National Statistics (ONS) (@ONS) September 10, 2024

While the pensions triple-lock seems safe under Labour, Jon Greer, head of retirement policy at Quilter, fears that the sustainability of the triple lock in the long term is questionable.

Greer explains:

It remains a contentious issue in pension policy, with no government willing to make drastic changes due to the potential backlash from a core voter base. Given recent changes to winter fuel payments which spurred immediate calls for a rethink due to the number of people who will struggle to pay their bills this winter as a result, any alterations to the triple lock by Labour seem entirely remote and more so given Rachel Reeves’ recent confirmation that it would stick by the policy.

“The debate around the triple lock often intersects with discussions on the appropriate level of the state pension relative to mean full-time earnings. There is a need for a consensus on the state pension level and a fair mechanism to ensure its value is maintained over time. Without such an approach, each uprating of the state pension risks creating generational divides. A system more closely aligned with average earnings might be more cost-effective and better reflect the nation’s overall prosperity.

“While the anticipated uplift in the state pension is positive news for pensioners, it is essential to consider the broader implications and sustainability of the triple lock policy. The government’s pension review will latterly look at pensions adequacy which must consider both state and private provision. Perhaps the review will be the mechanism to start the journey for change that removes the politics from the triple lock.”

Introduction: UK wage growth to set pensions triple-lock increase

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

We’re about to get a new healthcheck on the UK jobs market, and learn by how much the state pension should increase by next year.

The latest labour market statistics, due at 7am, are expected to show the unemployment rate dropped to 4.1% in May-July, down from 4.2% a month ago.

But wage growth is also expected to have slowed; total pay (including bonuses) is expected to have risen by 4.1% in the quarter, down from 4.5%.

And that will have implications for pensioners.

Under the UK’s triple-lock system, the state pension should rise each year by either inflation (the previous September), average earnings (for May-July), or 2.5%.

Inflation is not expected to rise sharply again this year (it was last clocked at 2.2%), so it’s today’s earnings figures that will be crucial.

The new State Pension is £221.20 a week, or £11,502 per year.

So, if wages did indeed rise by 4.1% in May-July, that would lift the state pension by just over £9 per week to around £230 per week. In annual terms, that’s over £470 more, to £11,973 a year.

Labour pledged to maintain the triple lock in their election manifesto. And last night, chancellor Rachel Reeves told a meeting of the Parliamentary Labour Party:

“Tomorrow, we get data for earnings growth, which will inform the increase in the pension next year. We are protecting the triple lock, not just for this year, but for the duration of this Parliament.”

Reeves also faces a crunch vote on the government’s controversial plan to scrap the winter fuel allowance.