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UK wage growth remained persistently strong in the three months to March despite a slowing jobs market, giving hawks on the Bank of England’s Monetary Policy Committee fresh grounds to wait for firmer signs of inflationary pressures easing before cutting interest rates.
The Office for National Statistics said on Tuesday that annual growth in average weekly wages, including bonuses, remained steady at 5.7 per cent in the three months to March, compared with analysts’ expectation of a slowdown to 5.5 per cent.
Excluding bonuses, average wages were 6 per cent higher than a year earlier over the same period, also unchanged from an upwardly revised estimate for the three months to February and higher than the expected 5.9 per cent.
Strength in earnings came against a backdrop of a softening jobs market in which vacancies continued to fall, payrolled employment was virtually flat and the number of people claiming unemployment benefits edged up.
The ONS said the unemployment rate rose to 4.3 per cent, in line with analysts’ expectations, with the employment rate steady at 74.5 per cent — sharply down on the previous quarter and from a year earlier.
Traders in swaps markets slightly increased the probability of a BoE rate cut by June to 50 per cent. Investors held bets that the central bank would deliver two quarter-point cuts by the end of the year.
Sterling brushed off the figures, remaining flat against the dollar on the day at $1.256.
BoE rate-setters have been wary of reading too much into official figures on the jobs market in recent months, because there have been deep-seated problems with the ONS’s labour force survey, and volatility in the figures on earnings — even though the latter are based on a separate survey.
However, the broad picture of a slowdown in hiring and persistently strong wage pressures in the run-up to a bumper increase in the statutory minimum wage is consistent with other surveys and data sources.
The figures will do little to resolve the divisions between members of the MPC who voted last week by seven to two to hold interest rates at a 16-year high of 5.25 per cent.
Minutes of the meeting suggested some MPC members wanted to see more evidence of pay pressures easing before starting to cut rates. But Andrew Bailey, BoE governor, said the MPC expected inflationary pressures to fade “slightly faster” than previously assumed, with businesses becoming less able to pass higher costs on to consumers.
Ashley Webb, economist at the consultancy Capital Economics, said Tuesday’s data could “at the margin . . . make the bank a bit more uneasy about first cutting interest rates in June”.
Monetary policymakers view the strength of the jobs market as critical to the inflation outlook because rapid wage growth in areas where workers are scarce has been a big factor fuelling prices in the labour-intensive service sector over the past year.
But Thomas Pugh, at the audit firm RSM UK, said unexpectedly high wage growth could reflect big retailers “getting ahead” of a minimum wage rise in April, and the MPC could still cut rates in June.
Yael Selfin, chief UK economist at KPMG, said wage growth was likely to slow in the coming months on the back of weaker hiring, and that data next month could “ignite more dovish sentiment on the MPC” provided it showed a higher minimum wage had given average earnings “only a modest boost”.
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