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British wage growth remained strong in the three months to April as a rise in the minimum wage boosted pay packets despite a slowing labor market, official data showed on Tuesday.
The Office for National Statistics said annual growth in average weekly earnings, including bonuses, remained stable at 5.9 percent, unchanged from an upwardly revised figure of 5.9 percent for the three months to March.
Excluding bonuses, annual growth in average wages was unchanged at 6 percent from the three months to March, in line with analyst expectations.
But according to the ONS, there were also signs of a cooling in the labor market. Unemployment increased compared to the main measure, while there was a slight decrease in the number of employees and vacancies, and an increase in the number of applications for unemployment benefits.
Economists said the figures were broadly in line with the Bank of England’s latest projections and would not change the outlook for interest rates. But it remains unclear whether the Monetary Policy Committee will be confident enough that inflation is on a sustainable path to start cutting rates from a 16-year high of 5.25 percent from August.
“It’s not a slam dunk. Cutting rates with such strong wage growth would be unusual,” said Rob Wood of the consultancy Pantheon Macroeconomics.
By August, the MPC could have enough evidence that wage growth and services inflation are slowing to cut rates, but unless the data becomes clearer it may have to wait until September, he argued.
“The BoE is likely to view this data as a sign that labor market conditions are easing, but private sector wage growth continues. . . a major roadblock to bringing inflation back to target,” said Ellie Henderson, economist at Investec.
The ONS’s core unemployment and employment figures remain less reliable than usual due to problems with the labor force survey that underpins them.
According to the Labor Force Survey, unemployment rose to 4.4 percent in the three months to April, compared with 4.3 percent in the three months to March, while the labor force participation rate fell to 74.3 percent – lower than a year ago.
Based on these figures, the UK workforce is in continued contraction and is now smaller than it was on the eve of the Covid-19 pandemic.
Tony Wilson, director of the Institute for Employment Studies think tank, said the data showed the number of workers had increased “for the first time in [Margaret] Thatcher’s first term”, with a drop of 40,000 since Boris Johnson’s victory in 2019, in contrast to the job gains of almost 4 million in the previous decade.
But other measures of employment paint a different picture. HM Revenue & Customs tax data shows that the number of people on employers’ payrolls has risen steadily from just over 29 million at the start of 2020 to 30.3 million in May, with only a slight decline in recent months.
A separate ONS measure of employed jobs, based on another survey of employers, found that the number of employed and self-employed jobs increased by 431,000 to 37.2 million over the year to March – but that this growth was caused by hiring from the public. sector, especially in healthcare.
However, all three measures indicate that the labor market has softened in recent months. Job vacancies have also fallen by a third to 904,000 since their 2022 peak, although they are still higher than before the pandemic.
Ruth Gregory of the consultancy Capital Economics said the “stickiness” of wage growth would be an “ongoing concern” for the BoE, but that this was partly due to the 9.8 percent increase in the statutory minimum wage in April and that this would not necessarily prevent the bank from cutting interest rates in August.