UK labour market shows signs of easing with weak pay growth

BLOOMBERG

The UK labour market showed some signs of cooling as wage growth slowed for the first time in more than a year. Average earnings growth excluding bonuses fell to 6.5% from a year earlier, the Office for National Statistics (ONS) said. That’s down from a record outside the pandemic of 6.7% in the previous three-month period. Job vacancies fell 51,000 in the quarter through February.
The figures suggest an unprecedented series of Bank of England (BOE) rate increases over the past year is starting to be felt in the labour market, where acute shortages of workers have driven up wages and fanned inflation.
The apparent loss of momentum may encourage speculation that official borrowing costs are close to peaking.
Traders slashed bets on where they see the tightening cycle ending after the collapse of Silicon Valley Bank in the US sent shock waves across global markets. The BOE is now expected to deliver just one more 25 basis-point hike, with a move later this month only partially priced in.
Economists noted, however, that the slowdown in wage growth still leaves the labour market uncomfortably tight as the BOE battles to bring double-digit inflation back to the 2% target.
The overall rate of unemployment remained 3.7% in the quarter through January. Economists had expected the rate to tick up to 3.8%.
“Tight labour market will compel the Bank of England to tighten the screws further,” said Yael Selfin, chief economist at KPMG UK. “While the annualised three-month measure for the private sector, which is closely watched by the Bank of England, dropped to 5.5%, more timely indicators from the KPMG and REC UK report on jobs have been little changed recently.”
Prime Minister Rishi Sunak has also called for wage restraint to help meet a government pledge to cut the rate of inflation in half this year from its current 10.1%.
“The jobs market remains strong, but inflation remains too high,” said Chancellor of the Exchequer Jeremy Hunt.
Those pleas have failed to avert strikes by hundreds of thousands of workers, mainly in the public sector, who are demanding their pay keeps pace with the fastest inflation in four decades.
In January, 220,000 working days were lost to labour disputes, bringing the total since June to 2.67 million — the most since the late 1980s when Margaret Thatcher was prime minister.
Strikes continued in February and action has escalated this week to coincide with Hunt’s budget on March 15, with walkouts by junior doctors, rail and London Underground workers, civil servants, teachers and university staff.