Wage growth eased slower than expected, but unemployment posted a surprising large jump, as the Bank of England considers when to start cutting interest rates.
Annual pay growth including bonuses averaged 5.6 per cent between December and February, according to figures from the Office for National Statistics (ONS), unchanged from 5.6 per cent last month and slightly ahead of expectations.
Excluding bonuses, pay growth eased to six per cent per cent from 6.1 per cent previously. Economists had expected it to fall below six per cent.
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Bank of England survey: Wage growth expectations ease in boost for interest rate cut hopes
“Recent trends of falling vacancy numbers and slowing earnings growth have continued this month albeit at a reduced pace,” Liz McKeown, director of economic statistics at the ONS said.
Wages are closely monitored by the Bank of England for signs of how its campaign of interest rate hikes are impacting the wider economy.
Rate-setters are concerned that high levels of wage growth could fuel persistent inflation, particularly in the labour-intensive services sector. Services inflation still stands at over six per cent.
Economists think annual wage growth needs to be closer to three per cent for inflation to remain sustainably at the target.
A Bank of England survey from February showed that finance chiefs at UK firms thought wages would grow around 4.7 per cent in the year ahead, its lowest level since May 2022.
Unemployment meanwhile jumped to 4.2 per cent, significantly higher than the previous estimate of 3.9 per cent. Unemployment has remained very low despite the Bank’s rate hikes, something which has surprised many economists.
McKeown recommended “caution” when looking at the unemployment figures given the difficulties the ONS is facing with lower sample sizes.
Interest rates currently stand at a post-financial crisis high of 5.25 per cent, but the Bank is likely to start cutting rates in the summer.