UK wage growth held steady at its highest level in nine months, and employment rose in February, providing further evidence of a resilient labor market. These developments are expected to influence the Bank of England (BOE) in its cautious stance regarding any further interest rate cuts.
According to data from the Office for National Statistics (ONS) released Thursday, average pay excluding bonuses rose by 5.9% in the three months through January, matching economists’ expectations. Private-sector pay growth, closely monitored by the BOE, eased slightly to 6.1%, down from 6.2% in the previous period.
Despite fears of significant job losses following an increase in employment costs as part of Labour’s first budget, there were no signs of large-scale redundancies. Payroll data revealed an increase of 21,000 in the number of payrolled employees in February, contrary to expectations of a decline of the same magnitude. This figure has remained stable since October, when Labour introduced a £26 billion ($33.7 billion) payroll tax hike and a substantial increase in the minimum wage.
The timing of the report, just hours before the BOE’s latest monetary policy decision, is likely to reinforce a cautious approach to rate cuts. The Monetary Policy Committee (MPC) had an early look at the data before their meeting on Thursday.
Some members of the MPC are concerned by the recent acceleration in pay growth, with surveys suggesting that businesses plan to continue implementing large wage increases into 2025.
Job vacancies increased by 1,000 compared to the previous three-month period, marking the first rise since the second quarter of 2022. Unemployment remained unchanged at 4.4%.
Ruth Gregory, deputy chief UK economist at Capital Economics, noted, “The latest figures show that the jobs market is not collapsing as some surveys suggest. With wage growth still persistent, this will heighten the BOE’s concerns about a resurgence in inflation, maintaining its ‘gradual and careful’ path on interest rate cuts.”
Following the release of the data, the British pound extended its losses, falling as much as 0.2% to $1.2983, as wage growth and unemployment figures matched expectations.
The BOE is widely expected to keep interest rates unchanged at its meeting at 12 p.m. in London. Officials are navigating a volatile global political landscape alongside persistent domestic price pressures, particularly within the labor market.
While surveys have indicated that businesses may be reducing their workforce and slowing hiring following Labour’s budget, official data has shown little evidence of a substantial rise in redundancies.
The outlook for the jobs market is crucial for the BOE as it assesses whether to continue its gradual interest rate reduction. The central bank is carefully weighing whether businesses will absorb higher costs through reduced profits, weaker employment, slower wage growth, or higher prices. A looser labor market, combined with a subdued economic backdrop, may provide the BOE with the confidence it needs to proceed with additional rate cuts in the coming months.
Meanwhile, the number of people out of the labor market due to long-term sickness remained largely unchanged at 2.8 million, close to recent record highs. The government recently announced a series of welfare reforms aimed at helping individuals with health conditions return to work.
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