The latest earnings growth figures give the "best indication yet" of next year's state pension increase, according to experts.
The Office for National Statistics' latest Labour market statistics showed unemployment dropped to 4.2 per cent from 4.4 per cent in the three months to June compared with the previous three months.
There was also the lowest wage growth seen in two years as annual growth in employees’ average regular earnings (excluding bonuses) fell to 5.4 per cent in April to June 2024, while annual growth in total earnings (including bonuses) fell to 4.5 per cent, marking the lowest wage increase seen for two years.
Steven Cameron, pensions director at Aegon, said this confirms it is "highly likely" next year's state pension increase will be based on earnings growth.
The triple lock means the state pension rise matches whatever is highest of, the rate of inflation, average earnings or 2.5 per cent.
Cameron said: "While not yet certain, this gives the best indication yet of by how much the state pension will increase next April under the triple lock, which the Labour government has confirmed will remain in place. The lower increase announced this month is because of a one-off bonus paid to NHS staff last June which will also suppress the figure announced next month."
Specifically, the earnings growth figure will be based on the year-on-year increase in earnings for the three months ending July 2024.
"Barring any big fluctuations when July’s earnings figures are added in, this suggests state pensioners may receive around a 4.5 per cent increase," he said.
However, if it was to rise by 4.5 per cent it would bring the annual state pension to £12,061, meaning pensioners could face an income tax bill.
Richard Carter, head of fixed interest research at Quilter Cheviot said the unemployment figure came as a surprise as an increase in the unemployment rate was expected.
He said: "Though wage growth is heading in the right direction as far as the Bank of England is concerned, for now it continues to outpace inflation and in real terms, regular earnings are currently rising 3.4 per cent which could help buoy the economy alongside increased consumer confidence following the first rate cut.
“Another round of data is due ahead of the Bank’s next interest rate decision in September which could sway things, but for now, this modest fall in wage growth may provide some reassurance that inflation pressures are relatively well contained and may therefore allow the Bank of England to continue cutting rates in the coming months, though it will continue to closely watch the unemployment rate.
"Markets have been pricing in a more aggressive path of rate cuts in the US than the UK, and we will likely have a clearer picture of what the Bank of England’s next steps could be by the end of the week once we have a better idea of the current state of the economy."
