UK wage growth exceeds expectations, signals cooling
British wage growth surpassed expectations according to data released on Tuesday, but other indicators hinted at a moderation in the labour market’s inflationary pressures, prompting the Bank of England to remain vigilant regarding potential interest rate cuts, Reuters reported.
Regular wages, excluding bonuses, climbed by 6.0 per cent in the first quarter of 2024 compared to the same period last year, exceeding economists’ projections of 5.9 per cent, albeit slightly slower than the 6.0 per cent growth seen in the three months up to February.
BoE’s Chief Economist, Huw Pill, acknowledged the historically tight labour market but suggested that the central bank might entertain the idea of rate cuts during the summer months. Following Pill’s remarks, the pound weakened, though investors largely maintained their anticipation of future BoE rate cuts, with odds of a first reduction in June hovering around 50-50.
The Office for National Statistics reported a 5.7 per cent increase in total pay, which includes the more volatile bonus payments, surpassing economists’ forecasts of 5.5 per cent. Private sector regular pay, a crucial metric for the BoE, moderated slightly to 5.9 per cent, slightly below the Bank’s recent forecast.
Rob Wood, chief UK economist at Pantheon Macroeconomics, has signalled a potential easing of wage pressures, suggesting that these trends might provide the Monetary Policy Committee with grounds for a rate cut in June.
While some analysts echoed the possibility of a June rate cut, others advocated for a more cautious approach. Jack Kennedy, senior economist at jobs platform Indeed, pointed out that the stronger-than-expected wage data raises doubts about a June interest rate cut, advocating for policymakers to await further evidence.
UK Finance Minister Jeremy Hunt highlighted the consistent trend of wages outpacing inflation, providing relief for families facing cost-of-living pressures.
The debate over rate cuts intensified following the BoE’s signal of a potential reduction from the current 16-year high of 5.25 per cent, with Tuesday’s data being the first of two official labor market releases before the central bank’s June 20 monetary policy announcement.
Despite robust wage growth, indications of a cooling labor market emerged, with the unemployment rate rising to 4.3 per cent, its highest since the three months up to July 2023. Vacancies declined for the 22nd consecutive period, raising concerns about the labor market’s resilience.
Roisin Currie, CEO of bakery and fast-food retailer Greggs, noted a decline in vacancy numbers but anticipated ongoing challenges for employers in the labor market for the foreseeable future.
Pressures from the recent increase in Britain’s minimum wage, coupled with governmental initiatives to boost employment, have led some employers to reconsider hiring practices or pricing strategies.
However, Britain’s inactivity rate, measuring those not in work and not actively seeking employment, rose to 22.1 per cent, nearing its highest level since mid-2022.
