UK Wage Growth Strengthens Case For Rate Hike

The UK total pay grew more than expected in the three months to February and higher job vacancies again strengthened wage demands, official data revealed Tuesday, adding the call for a quarter-point interest rate hike from the Bank of England next month.

The unemployment rate rose slightly to 3.8 percent in the three months to February from 3.7 percent in the preceding period. The rate was forecast to remain unchanged at 3.7 percent.

The employment rate rose 0.2 percentage points to 75.8 percent in the three months to February. The increase was driven by part-time employees and self-employed workers.

Payroll jobs showed another monthly increase in March. Employment increased 31,000 from the previous month to 30.0 million.

At the same time, the number of vacancies decreased 47,000 sequentially in the first quarter, declining for the ninth consecutive period to reflect the uncertainty across industries, the ONS said. Still vacancies remained above 1 million.

Total pay including bonuses increased 5.9 percent in the three months to February, which was faster than economists’ forecast of 5.1 percent. Excluding bonuses, earnings increased 6.6 percent from a year ago, as expected.

The ONS said about 348,000 working days were lost due to labor disputes in February. The figure rose from 210,000 in January. Most of the strikes were in the education sector.

In March, the claimant count rate rose to 3.9 percent from 3.8 percent in February. Jobless claims increased by 28,200 from the previous month.

The latest data has complicated the Bank of England’s rate decision in May, ING Economist James Smith said.

“A similar blowout in services inflation tomorrow would probably be enough to lock in another 25 basis points rate hike next month,” Smith added.

British Chambers of Commerce Head of People Policy Jane Gratton said unfilled jobs are a drag anchor on firms. People shortages are inevitably feeding into upward pressure on wage demands, Gratton noted.

“This remains a big concern for the Bank of England and a chief reason for the continuing rise in interest rates,” added Gratton.

The next monetary policy announcement from the BoE is due on May 11. The central bank has thus far raised the bank rate by 415 basis points over the current tightening cycle that began in December 2021.

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