[LONDON] UK wage growth held at its highest level in nine months and employment rose, evidence of resilient demand for workers that will likely keep the Bank of England cautious over further rate cuts.
Average pay excluding bonuses rose 5.9 per cent in the three months through January, the Office for National Statistics said on Thursday (Mar 20). It was in line with economists’ expectations. Private-sector pay growth, the gauge being watched closely by the BOE, eased modestly to 6.1 per cent from 6.2 per cent.
There was little sign of big job losses materialising as feared following a hike in employment costs in Labour’s first budget. Tax data showed the number of payrolled employees rose 21,000 in February, defying expectations for a fall of the same size. The measure is flat since October when Labour announced a £26 billion (S$44.9 billion) hike in payroll taxes and another hefty rise in the minimum wage.
Coming just hours before the latest BOE decision on Thursday, the figures are likely to entrench caution over lowering interest rates from restrictive territory too quickly. The Monetary Policy Committee was given an early look of the data before their meeting.
Some rate-setters are concerned over a recent quickening in pay growth with surveys suggesting that firms plan to press ahead with more large wage hikes in 2025.
Vacancies were up 1,000 compared with the previous three-month period, the first rise since the second quarter of 2022, while unemployment held at 4.4 per cent.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
“The latest figures show that the jobs market is not collapsing as some surveys suggest,” said Ruth Gregory, deputy chief UK economist at Capital Economics. “With wage growth still sticky that will increase the Bank’s concerns about a resurgence in inflation and keep it on its ‘gradual and careful’ interest rate cutting path.”
The pound slightly extended losses after the data showed wages growth and the unemployment rate matched expectations, falling as much as 0.2 per cent to US$1.2983.
The UK central bank is widely expected to keep rates on hold when the latest decision is announced at 12 pm in London. Officials are contending with a volatile global political backdrop as well as stubborn domestic price pressures, including from the labour market.
While surveys have pointed to businesses reducing headcount and curtailing hiring after Labour’s budget, there has been little sign of a major increase in redundancies in official data.
The fate of the jobs market is seen as crucial to the BOE, as it decides whether to stick to a gradual reduction in rates. It is trying to judge whether firms will react to higher costs by taking a hit to their profits or passing them on through weaker employment, lower wage growth or higher prices. A looser labour market coupled with the tepid economic backdrop may provide the rate-setters enough confidence to press ahead with more rate cuts over the spring and summer.
The number of people out of the labour market due to long term sickness was largely unchanged at 2.8 million, close to recent record highs and roughly where it has been for the past year. The government this week announced a series of welfare reforms in an attempt to bring more people with health conditions back into employment. BLOOMBERG
