UK wage growth accelerated again in the first quarter, ratcheting up pressure on the Bank of England, although there were further signs that Britons are returning to the jobs market to ease chronic labor shortages.
(Bloomberg) — UK wage growth accelerated again in the first quarter, ratcheting up pressure on the Bank of England, although there were further signs that Britons are returning to the jobs market to ease chronic labor shortages.
Average earnings excluding bonuses rose 6.7% in the three months through March compared with a year earlier, the Office for National Statistics said Tuesday. That compares with 6.6% in the period through February.
The figures may fuel speculation that the most aggressive monetary tightening cycle in decades has further to run. Pay growth was slightly below expectations but remains far too high for comfort at the BOE, which last week delivered a 12th straight rate increase in a bid to avert a wage-price spiral.
However, there were some signs that labor-market conditions may be starting to cool.
The pound fell against the dollar and the euro after the release showed payrolls in April fell far more than expected, while traders pared bets on BOE rate increases. Sterling traded 0.5% weaker at $1.2467 as of 7:37 a.m. in London.
The ONS said its more forward-looking measure on the number of payrolled employees decreased in April by 136,000, the first fall since February 2021. However, it cautioned this is a provisional estimate and is likely to be revised.
The jobless rate edged up to 3.9% from 3.8%, driven by another sharp fall in inactivity, those not looking for work, which has seen a steep rise since Covid.
“It’s encouraging that the unemployment rate remains historically low but difficulty in finding staff and rising prices are a worry for many families and businesses,” Chancellor the Exchequer Jeremy Hunt said. “That’s why we must stick to our plan to halve inflation and help families with the cost of living, while delivering our childcare reforms and supporting older people and disabled people who want to work.”
The fall in inactivity was most marked among 16-64 year olds as students returned to work. However, people inactive due to long-term sickness hit another record high. There are now 438,000 more long-term sick than before Covid.
Vacancies also declined for the 10th consecutive time but still remained at 1.1 million, well higher than pre-pandemic levels. Job postings slipped in 14 of the 18 sectors tracked by the ONS as employers turn cautious amid a deteriorating economic backdrop.
On Monday, BOE Chief Economist Huw Pill signaled that whether officials can hit pause on interest rates will depend on upside risks to inflation such as wage growth and labor market tightness. Employment rose 182,000 in the first quarter.
“Labour market remains resilient, but signs of cooling are beginning to emerge,” said Yael Selfin, chief economist at KPMG UK. “Wage growth remains elevated, driven by firms competing for scarce workers and employers seeking to compensate workers for some of the strong inflation and rising mortgage costs they have experienced.”
Wages have been driven higher by acute labor shortages made worse by the loss of hundreds of thousands of people from the work force since the pandemic.
Earnings are nonetheless failing to keep pace with double-digit inflation, a gap that has led to months of strikes that have disrupted services and hit the economy as workers from nurses and teachers to civil servants and train drivers seek to maintain their living standards. Regular pay fell 2% in real terms on the year.
The ONS said 556,000 working days were lost due to strike action in March, a month that saw junior doctors walk out for the first time since 2016. That’s the highest number since December.
–With assistance from Constantine Courcoulas, Harumi Ichikura and Mark Evans.
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