Wednesday, May 29, 2024

UK wage growth resilient despite jobless rate rising to highest in nearly a year

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The Office for National Statistics (ONS) said the rate of UK unemployment rose to 4.3% in the three months to March, which is the highest since May to July last year and up from 4.2% in the previous three months.

In a further sign of that the employment sector is weakening, the ONS estimated that the number of UK workers on payrolls tumbled by 85,000 to 30.2 million in April – the largest fall since May 2020, although the ONS said this was subject to revision.

Vacancies in the jobs sector also dropped by 26,000 quarter on quarter to 898,000 in the three months to April – the 22nd consecutive fall.

Despite this, the data showed regular average earnings growth remained unchanged at 6% in the three months to March, confounding expectations for a fall to 5.9%.

While this helped wages outstrip Consumer Prices Index (CPI) inflation by 2.4% – the highest since the three months to August 2021 – it is unhelpful for the Bank of England in its battle to rein in inflation.

(PA Graphics)

The Bank is watching the jobs market and wages in particular closely as it looks to bring CPI back to its 2% target, and cooling earnings growth is seen as being key to paving the way for it to begin cutting interest rates.

It marked the second time in a row that the decline in earnings growth has failed to match forecasts.

Experts said the Bank will be looking at the next set of job numbers carefully, given last month’s near 10% rise in the National Living Wage, while it will also likely want to see further progress toward its target in the upcoming April inflation data.

(PA Graphics)
(PA Graphics)

Alice Haine, personal finance analyst at Bestinvest, said: “The likelihood of a summer rate cut, with many consumers pinning their hopes on a move as early next month, may be slightly dented by the better-than-expected pay growth data.”

Chris Beauchamp, chief market analyst at IG, said a cut in June was still uncertain.

“I think the latest data shows that we are still on the path to cut rates, but as we probably already know, not as quickly as many would like and in a very gradual way when it does come, June is still very much up in the air,” he said.

Others said a rate reduction next month was still on track, with Peter Arnold, EY UK chief economist, saying Bank rate setters would be encouraged by the ONS data showing private sector jobs growth edging down to 5.9% in the three months to March.

(PA Graphics)
(PA Graphics)

The data comes after official figures last week showed the UK emerged from a short and shallow recession, with gross domestic product (GDP) up 0.6% in the first three months of the year.

Experts said the latest jobs data showed the impact of interest rates remaining at their highest since 2008, at 5.25%.

It added that the number of people classed as economically inactive rose to 9.4 million in the first three months of 2024 – up 1.1% quarter-on-quarter and 3.3% higher than a year earlier – while there were also 178,000 fewer people overall employed quarter-on-quarter, at 33 million.

Chancellor Jeremy Hunt said: “This is the 10th month in a row that wages have risen faster than inflation, which will help with the cost-of-living pressures on families.

“While we are dealing with some challenges in our labour supply, including pandemic impacts, as our reforms on childcare, pensions tax reform and welfare come online I am confident we will start to increase the number of people in work.”

But economists remain cautious over the ONS data, as the statistics body continues to overhaul its labour force survey due to low response rates, with the full revamped version not due to be introduced until September.

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