FX.co ★ UK Pay Growth Tops Expectations

In the United Kingdom, average earnings in March exceeded predictions and unemployment figures rose slightly. The reduction in employment rate was less dramatic than projected and there was a continued drop in job vacancies. This indicates a slowdown in the job market, a pattern that the Bank of England is observing, as it is poised to reduce interest rates soon. The Office for National Statistics unveiled preliminary data indicating a 6.0% year-on-year wage growth, excluding bonuses, during the January to March quarter.

Economic forecasters predicted a 5.9% increase in regular pay, which is the metric used by the Bank of England to monitor wage inflation. Including bonuses, pay escalated by 5.7% annually in the March quarter, surpassing economists' 5.3% growth projections. The ONS stated that both the manufacturing and finance and business services sectors experienced the highest annual regular growth rate at 6.8%.

Notably, private sector standard pay growth was 5.9%, the largest jump since the April to June 2022 period when wages expanded by 5.4%. Public sector pay increased by 6.3% in the March quarter. In line with expectations, unemployment rates for those aged 16 and above increased to 4.3% in March.

Additionally, job claimants grew by 8,900 on the month, summing up to 1.579 million claimants in April, significantly less than the predicted 13,900. Employment rates decreased by 178,000 people from the previous period, which was less than the estimated drop of 215,000. Job vacancies fell by 26,000 between February and April to 898,000 positions, marking the 22nd consecutive quarterly decrease in vacancy numbers, according to the ONS. With 13 out of 18 industry sectors reporting a fall in job openings, the cooling of the UK job market is increasingly evident.

ING economist James Smith opined that, with falling vacancies and slowing private sector wage growth, the Bank of England would shift its attention from wage inflation to services inflation in coming weeks to decide whether to cut interest rates in June or later. Smith also emphasized that the likelihood of a rate cut commencing in June or August was about evenly split.

Jane Gratton, the Deputy Director of Public Policy at the British Chambers of Commerce, echoed the data’s consistency with business feedback. She noted that despite an easing in recruitment conditions during the first quarter, businesses continued to face significant challenges and pressures. Factors such as competition for skills, increased wage costs and high interest rates were influencing businesses and posing a potential impediment to investment and growth.