Wages are still rising but at a slower pace as the unemployment rate surprisingly fell, according to official figures.

The percentage of people who are out of work and looking for a job dropped to 4.2% in July, said data from the Office for National Statistics (ONS).

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A rise had been forecast by economists. Those polled by news agency Reuters expected a rise to 4.5%, up from the 4.4% recorded a month ago.

A low unemployment rate can indicate a healthy economy and increase pressure for wages to rise.

What’s happening with wages?

The ONS figures showed wages, excluding bonuses, grew 5.4% in the three months to June, less than the 5.8% experienced a month before. While strong, the figure was last this low two years ago, the ONS said.

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Wages grew at the fastest rate since August 2021 when measured against inflation

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When price rises (measured by inflation) are factored in wages rose 3.2%, the figures showed.

The long-running trend of private-sector wage growth being above public-sector increases continued to be bucked. Public sector pay growth was 6%, while private sector wages were up 5.2%.

What does it mean for interest rates?

Such strong wage growth was anticipated by economists, likely meaning no major changes in the expected path for interest rate-setters at the Bank of England.

High interest rates mean more expensive borrowing.

Markets currently expect the interest rate to be kept at 5% when the Monetary Policy Committee next meets in September but data on economic growth and inflation released in the coming days may change that.

The ONS, however, warned against reading too much into its own labour market figures as they are liable to revision.

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