Wage growth remained stubbornly high over the past quarter, but unemployment crept up, giving the Bank of England differing signals on how its interest rate hikes are impacting the economy.
Annual pay growth excluding bonuses averaged 6.0 per cent between February and April, according to figures from the Office for National Statistics (ONS), unchanged on last month and marginally below expectations.
Including bonuses, however, annual wages rose 5.9 per cent. This was an acceleration on last month and higher than economists expected.
The slight acceleration in wage growth was likely influenced by the near 10 per cent increase in the National Minimum Wage in April.
Unemployment meanwhile rose to 4.4 per cent between February and April, up from 4.3 per cent previously.
The figures will be closely scrutinised as policymakers at the Bank of England consider when to cut interest rates. Wage growth has remained stubbornly strong throughout the year, prompting concern that it could contribute to sticky prices.
Inflation in the labour-intensive services sector is heavily influenced by wage growth. Rate-setters have repeatedly said they need to see further progress on services inflation before cutting rates.
Forward looking surveys suggest there will be more progress on wage growth in the months ahead. Firms surveyed by the Bank of England in May expect wages to grow 4.1 per cent in the year ahead, the lowest level since the Bank first ask the question back in May 2022.
Hot inflation data for April has taken a June rate cut off the table, but economists still think August is on the cards if price pressures continue to moderate.
The European Central Bank (ECB) cut interest rates for the first time in five years last week, but most investors interpreted the decision as a ‘hawkish’ cut and expect the ECB to wait before cutting rates again.
The Fed meanwhile announces its latest rate decision tomorrow with investors certain rates will be left on hold.