UK wage growth slows to 5.7% as unemployment remains near record low
UK wage growth slowed in the three months to January as economic pressure made employers more insecure about hiring, official data showed on Tuesday.
Office for National Statistics said the unemployment rate remained near a record low of 3.7 percent despite the difficult economic climate, while the employment rate was 0.1 percentage point higher than the previous three-month period at 75.7 percent.
Over the past two years, due to a tight labor market, many employers have struggled to fill vacancies while helping workers secure wage increases that have at least partially cushioned the blow to living standards caused by soaring inflation.
Policies on Bank of England believe that rapid wage growth can make high inflation more sustainable, and this is one of the key indicators that will determine how much further interest rates rise.
The latest data may give policymakers some hope. The ONS reported that the annual increase in average total wages, including bonuses, was 5.7% in the three months to January, compared with 6% in the previous month. Excluding bonuses, wage growth fell from 6.7% to 6.5%.
Samuel Tombs of consultancy Pantheon Macroeconomics said it was a “clear slowdown” that strengthened the Bank of England Monetary Policy Committee’s case to keep interest rates unchanged at its meeting next week.
Along with slower wage growth, the data showed that hiring pressure continues to ease, with job openings falling for the eighth month in a row. The layoffs have also caused layoff rates to return to levels not seen before the Covid pandemic.
The reduction in the cost of living may also have spurred some people out of the labor market in search of work, a welcome development as post-pandemic rise in economic inactivity threatens to slow UK long-term economic growth and increase inflationary pressures.
ONS data showed that the proportion of the working-age population classified as economically inactive because they are not working or looking for work fell 0.2 percentage points from the previous three-month period to 21.3 percent.
This was largely due to the fact that there were fewer students outside the labor force, but also a decrease in the number of people who said they were retired.
Thomas Pugh, an economist at accounting firm RSM, said that while the labor market is still “too tight for MPC to relax,” slower wage growth, combined with fewer job openings and economic inactivity, will put next week’s interest rate decision on hold. . .
“Add to this the sharp deterioration in the financial situation associated with the collapse SVBand now the Bank of England has every reason to act much more cautiously,” he said.
However, others believe the job market remains too hot for comfort, with more than a million jobs unfilled and the workforce still nearly a quarter of a million smaller than it was before the pandemic.
David Bharrier, head of research at the British Chamber of Commerce, said the figures highlight the need for Chancellor Jeremy Hunt take action in the budget Wednesday, doing more to reduce childcare costs and combat record levels of ill health among the workforce.