UK wage growth has remained at its highest level in nine months while employment rates have increased, indicating a strong demand for workers. This situation is likely to make the Bank of England cautious about implementing further rate cuts.
According to data from the Office for National Statistics, average pay excluding bonuses rose by 5.9% in the three months leading up to January, meeting economists' predictions. Private-sector pay growth, which the Bank of England closely monitors, saw a slight decrease from 6.2% to 6.1%.
Despite concerns of potential job losses following an increase in employment costs in the Labour government's budget, there has been little evidence of significant layoffs. Tax data revealed a rise of 21,000 payrolled employees in February, contrary to expectations of a decrease. This trend has continued since October when the Labour government announced higher payroll taxes and an increase in the minimum wage.
These figures, released just before the latest Bank of England meeting, are expected to reinforce the need for caution when it comes to lowering interest rates too swiftly from a restrictive position. The Monetary Policy Committee reviewed the data before their meeting.
Some committee members are worried about the recent acceleration in pay growth, indicated by surveys showing that companies plan to implement significant wage hikes in 2025.
While vacancies increased by 1,000 compared to the previous quarter, the first rise since the second quarter of 2022, the unemployment rate remained at 4.4%.
Ruth Gregory, the deputy chief UK economist at Capital Economics, noted that the job market is not as weak as some surveys suggest. With wage growth remaining firm, concerns about potential inflation resurgence will likely keep the Bank on its cautious interest rate adjustment path.
Following the data release showing expected levels of wage growth and unemployment rates, the pound experienced a slight drop, reaching $1.2983.
The Bank of England is expected to maintain its current interest rates in the latest announcement. The Bank faces challenges from global political uncertainties and persistent domestic price pressures, particularly from the labor market.