London: UK wage growth accelerated unexpectedly, adding to inflationary pressures that are concerning the Bank of England.
Average earnings excluding bonuses rose 6.6 per cent in the three months through February compared with a year ago, the same pace as the previous period, which was also revised up, the Office for National Statistics said Tuesday. Economists had expected a slowdown to 6.2 per cent.
Policy makers led by BOE Governor Andrew Bailey were expecting pay growth to cool and ease inflation, which is five times its 2 per cent target. The figures feed into the debate about whether the central bank can pause its quickest series of rate rises in three decades.
Economists and investors are divided about the next move. More than half of economists in a Bloomberg News survey now think rates have peaked at 4.25 per cent. But money markets are pricing in another 50 basis points of tightening by the summer.
A more complete picture will emerge on Wednesday, when official figures are expected to show inflation slipping back into single digits for the first time since August. Further declines are forecast as the energy shock recedes.
There were some signs that the red-hot labor market was loosening, which may ease pressure on wages in the months ahead. Unemployment rose unexpectedly to 3.8 per cent from 3.7 per cent.
Also, more people returned to the jobs market, but the employment rate was still 0.2 percentage points higher than the previous three months at 75.8 per cent.
A 153,000 decline in working-age inactivity “- the people who do not have a job and aren’t looking “- was mainly driven by students getting back into work. The huge rise in the number of inactive students during the pandemic has now largely reversed, but overall there are still 422,000 more inactive people than before Covid struck. Those inactive due to long-term sickness hit a record high.
The economy was still generating jobs at a healthy pace, fanning staff shortages that businesses say force them to push up pay. Employment in the latest period rose 169,000, more than triple the pace economists had expected.
Vacancies fell by 47,000 but remained historically high at 1.1 million.
Recent surveys suggest the jobs market is loosening, and a measure of wage growth closely watched by the BOE dropped further in the three months through February.
The jump in pay also will concern Prime Minister Rishi Sunak, who has called for wage restraint to help meet his pledge to cut the rate of inflation in half by the end of the year.
“While unemployment remains close to historic lows, rising prices continue to eat into pay cheques which is why halving inflation this year is one of our top economic priorities,” said Chancellor of the Exchequer Jeremy Hunt.
Those pleas have failed to avert strikes by hundreds of thousands of workers from civil servants to nurses, who are demanding their pay keeps pace inflation.
There were 348,000 working days lost because of labor disputes in February, up from 210,000 the month before. Three-fifths of those days lost were in the education sector. More than 3 million days have been lost since June, the highest nine-month reading since 1990.
Pay in the public sector grew 5.3 per cent from a year earlier, compared with 6.9 per cent in the private sector. The gap between the two narrowed, with public sector pay rising at its fastest pace since 2005 “- except for the period during the pandemic.
Adjusted for inflation, basic pay overall is falling at an annual rate of 2.3 per cent.
