The labour market’s signs of stalling could lead to easing in wage growth, which in turn could prompt the Bank of England to lower interest rates this year.
The UK
labour market continues to cool amid an unexpected jump in the unemployment rate of 4.2 percent in the three months leading up to February.
Economists estimated the
headline unemployment rate to be around 4 percent in the latest quarter. The above estimates rate has been lowering since the summer of 2023, only to start rising in October to December last year.
The
Office for National Statistics (ONS) data also showed that employment decreased in the latest quarter. In December 2023 to February 2024, the employment rate fell below estimates of a year ago, down to 74.5 percent.
Liz McKeown, ONS director of economic statistics, said that both a fall in employment and in the total number of people on payrolls “were tentative signs that the jobs market is beginning to cool.”
She also noted that falling vacancy numbers and slowing earnings growth have continued this month, albeit at a reduced pace. Vacancies fell in January to March by 13,000 for the 21st consecutive period.
Regular wages (excluding bonuses) continue to be strong, the ONS said, adding, however, that they weren’t as strong as in recent period. In the three months to February, the rate fell to 6 percent, down from the previous quarter value of 6.1 percent.
Real Wages
The picture was slightly more positive in real regular wage growth, which rose by 2.1 percent in the highest climb for almost two-and-a-half years.“With real wages up again, we are making work pay,”
said the Secretary of State for Work and Pensions Mel Stride.
Focusing on the rise in real wages and the yearly increase in payrolled employees, Mr. Stride
said “we are on the right path to delivering a brighter future for Britain.”
His Labour counterpart, Alison McGovern, however, highlighted the dropping employment rate, which is still below pre-pandemic rates.
“Yet again. Still no employment recovery. Still lower than pre-pandemic. We are the only G7 country not to recover. Tory failure. Economic decline. Britain pays the price,” she
said on social media platform X.
The ONS has warned to treat the quarter data with “additional caution” due to increased volatility of the labour market survey, based on low response rates.
More than 100,000 working days were lost across the country in February, as health and social workers took part in industrial action.
Inflation and Interest Rate
Labour market data is being watched closely by Westminster and the Bank of England (BoE), as both politicians and economists seek to bring inflation to its 2 percent target.From an inflation point of view, wage growth that is unmatched by productivity gains risks inflation.
“Solid earnings growth in February will, we think, mean rate setters want to wait until June before lowering interest rates, so they can see the post-minimum wage hike data,”
said chief UK economist at Pantheon Macroeconomics, Rob Wood.
He suggested that growth in earnings is expected to be pushed higher by the rise in the
national living wage from April 1. The higher rate, kicking in this month, will see the national living wage rise to £11.44, a 9.8 percent increase.
Member of the BoE’s Monetary Policy Committee (MPC), Megan Green,
has warned against expecting imminent interest rate cuts.
In her analysis of the UK labour market, Ms. Green said it compares unfavourably to other advanced economies, having failed to recover from the pre-pandemic trend.
The BoE expects inflation to hit its 2 percent target in the second quarter 2024, before increasing again in subsequent quarters. The MPC said that its monetary policy will need to remain restrictive for sufficiently long, as the bank needs more evidence that inflation will fall sustainably before it lowers interest rates.
PA Media contributed to this report.
