British wage growth was stronger than expected in the three months to April, while the unemployment rate unexpectedly declined. The figures suggest that the UK labour market remains relatively resilient ahead of the Bank of England’s latest interest rate decision.
UK Wage Growth Beats Forecasts
Average weekly earnings, excluding bonuses, increased by 3.4% annually during the three months to April.
Economists surveyed by Reuters had expected wage growth to slow to 3.2%. Instead, the rate remained unchanged from the previous reporting period.
Meanwhile, the UK unemployment rate fell unexpectedly to 4.9%, compared with an earlier reading of 5.0%.
Bank of England Monitors Wage Pressures
The Bank of England is closely monitoring the UK labour market for signs of renewed inflationary pressure.
Policymakers are assessing whether higher oil prices linked to the Iran war could lead workers to demand larger pay increases. However, weaker demand for employees may limit workers’ ability to negotiate higher wages.
The central bank is widely expected to leave interest rates unchanged at 3.75% later on Thursday.
Most Bank of England policymakers believe the labour market is now weaker than it was in previous years. This could reduce the risk of unusually large wage increases.
Strong Pay Growth Remains an Inflation Concern
Wage growth has played an important role in the Bank of England’s efforts to bring inflation back to its 2% target.
Following Russia’s full-scale invasion of Ukraine in 2022, UK inflation reached a peak of 11.1%. Annual wage growth remained above 5% for almost three years during the same period.
The Bank of England believes that wage growth significantly above 3% makes it more difficult to achieve its inflation target on a lasting basis. Persistently weak productivity growth adds to this challenge.
Unemployment Figures Remain Difficult to Interpret
The unemployment data is based on a survey conducted by the Office for National Statistics.
The survey has experienced low response rates in recent years, making changes in the labour market more difficult to assess accurately.
However, the ONS said participation in its latest surveys has recovered to levels close to those recorded before the COVID-19 pandemic.
UK Payroll Numbers Increase Slightly
Separate ONS figures based on tax records showed that the number of employees on company payrolls increased by 2,000 in May.
These payroll estimates are often revised significantly after their initial publication.
The ONS originally reported that payroll employment fell by 100,000 in April, which would have been the largest monthly decline since May 2020. That estimate was later revised to a smaller decrease of 53,000.
Job Vacancies Fall to Lowest Level Since 2021
The number of job vacancies fell by 19,000 to 707,000 during the three months to May.
This was the lowest level recorded since early 2021 and significantly below the peak of approximately 1.3 million vacancies reached in 2022.
The continuing decline in available positions suggests that demand for workers is weakening, despite stronger-than-expected wage growth and the slight fall in unemployment.
