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UK wage growth was higher than expected in the three months to February but the figures, released on Tuesday by the Office for National Statistics, were accompanied by a sharp rise in unemployment.
Average earnings, including bonuses, were 5.6 per cent higher over the period than a year earlier, according the ONS. Analysts had expected annual growth to slow to 5.5 per cent.
The unemployment rate averaged 4.2 per cent in the three months to February, up 0.3 percentage points from the previous three-month period.
Paul Dales, chief UK economist at the consultancy Capital Economics, said that without this “clear weakening in activity in the labour market, we’d be a bit worried that the UK’s disinflation process is grinding to a halt like in the US”.
But he said the sharp fall in employment suggested wage growth would continue to ease, allowing the Bank of England to cut interest rates from June even if the US Federal Reserve took longer to loosen policy.
The average earnings figure was the same annual growth rate as in the three months to January. Excluding bonuses, annual earnings growth edged down from 6.1 per cent to 6 per cent, remaining stronger than the 5.8 per cent pace analysts had expected.
The employment rate fell 0.5 percentage points to 74.5 per cent over the same period, while the share of working-age adults who were neither in work or job-seeking rose to 22.2 per cent.
The figures suggest it could take time before BoE rate-setters are confident that inflationary pressures in the economy have eased enough to start cutting interest rates from their current 16-year high of 5.25 per cent.
But the data also suggested that a softer jobs market could weaken workers’ bargaining power in the months ahead.
The ONS has warned that short-term movements in jobs data may be volatile because of problems with the survey underpinning the figures.
But alternative indicators of employment — including tax records and claims for out-of-work benefits — also pointed to drop in the number of payrolled employees and more people falling out of work.
Sterling weakened by 0.2 per cent against the dollar after the figures were released.
Traders in swaps markets initially moved to fully price in two quarter-point rate cuts from the BoE by the end of 2024, before paring back these bets to a 90 per cent probability, as before the data release.
Thomas Pugh, economist at the audit firm RSM UK, said stubborn wage growth would “give the hawks on the monetary policy committee . . . some ammunition”, especially given the potential for geopolitical events to deliver a new energy price shock.
But he added that the rise in unemployment “left the door ajar” for the MPC to start cutting rates from June.
Tony Wilson, director of the Institute for Employment Studies, said the figures were “surprisingly poor”, in particular when it came to economic inactivity — with the UK’s labour force now smaller by almost a million people than it was on the eve of the pandemic.
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