UK pay grows 5.9% despite slowing jobs market

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UK wage growth remained strong in the three months to April as a rise in the minimum wage boosted pay packets despite a slowing jobs market, official data showed on Tuesday.

The Office for National Statistics said annual growth in average weekly wages, including bonuses, remained steady at 5.9 per cent, unchanged from an upwardly revised figure of 5.9 per cent for the three months to March.

Excluding bonuses, annual growth of 6 per cent in average wages was also unchanged from the three months to March, in line with analysts’ expectations.

But the ONS said there were also signs of the labour market cooling. Unemployment rose on its headline measure, while there was a slight decline in the number of payrolled employees and in job vacancies and an uptick in claims for jobless benefits.

Economists said the figures were broadly in line with the Bank of England’s latest projections and would not change the outlook for interest rates. But it remains unclear whether the Monetary Policy Committee will feel confident enough that inflation is durably on the way down to begin cutting rates from a 16-year-high of 5.25 per cent from August.

“It’s not a slam dunk. Cutting rates with pay growth as strong as this would be unusual,” said Rob Wood, at the consultancy Pantheon Macroeconomics.

By August, the MPC might have enough evidence of wage growth and services inflation slowing to cut rates, but unless the data became clearer, it might need to wait until September, he argued.

“The BoE is likely to take this data as a sign that labour market conditions are easing, but private sector regular pay growth remains . . . a key roadblock to returning inflation to target,” said Ellie Henderson, economist at Investec.

The ONS’s headline measures of unemployment and employment remain less reliable than usual due to problems with the labour force survey that underpins them.

Line chart of Annual % change in nominal and real wage, rolling three-month average showing UK wage growth remains strong and is outpacing inflation

On the labour force surney measure, unemployment rose to 4.4 per cent in the three months to April, up from 4.3 per cent in the three months to March, with the employment rate falling to 74.3 per cent — lower than a year ago.

Based on these figures, the UK’s workforce has suffered an ongoing contraction and is smaller now than it was on the eve of the Covid-19 pandemic.

Tony Wilson, director of the Institute for Employment Studies think-tank, said the data showed the number of people in work had fallen “for the first time since [Margaret] Thatcher’s first term”, with a drop of 40,000 since Boris Johnson’s 2019 victory, in contrast to job gains of almost 4mn over the previous decade.

But other measures of employment paint a different picture. HM Revenue & Customs tax records show the number of people on employers’ payrolls had risen steadily from just over 29mn at the start of 2020 to 30.3mn in May, with only a slight dip in recent months.

A separate ONS measure of workforce jobs, based on a different survey of employers, showed the number of employee and self-employed jobs had increased by 431,000 over the year to March to 37.2mn — but that this growth was driven by hiring in the public sector, especially in health.

However, all three measures suggest the jobs market has softened in recent months. Vacancies have also fallen by a third since the 2022 peak, to 904,000, although it remains higher than before the pandemic.

Ruth Gregory at the consultancy Capital Economics said the “stickiness” of wage growth would be a “lingering concern” for the BoE, but it was partly due to April’s 9.8 per cent rise in the statutory minimum wage and would not necessarily prevent the bank from cutting interest rates in August.

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