UK wage growth remains robust

UK wage growth remained robust in the three months to March, persisting despite a slowdown in the job market. This paints a mixed picture that will further underscore divergences at the Bank of England regarding the timing of interest rate cuts.

The Office for National Statistics reported on Tuesday that annual growth in average weekly wages, including bonuses, remained steady at 5.7% in the three months to March, contrasting analysts' expectations of a slowdown to 5.5%.

Excluding bonuses, average wages were 6% higher than a year earlier during the same period, also unchanged from an upwardly revised estimate for the three months to February, and surpassing the anticipated 5.9%.

Despite the strength in earnings, the data also revealed a weakening job market, with vacancies continuing to decline, payrolled employment remaining nearly unchanged, and the number of people claiming unemployment benefits increasing slightly.

The ONS reported that the unemployment rate rose to 4.3%, in line with analysts' expectations, while the employment rate remained steady at 74.5%. This marked a significant decline from the previous quarter and from a year earlier.

Following the release of the new statistics, Huw Pill, the BoE's chief economist, noted that he observed a labor market that is easing, evidenced by higher unemployment and lower vacancies, although it remains tight by historical standards.

Across a range of wage indicators, pay growth did seem to be declining, he continued, but it remained above levels consistent with the sustainable achievement of the 2% inflation target.

Sterling initially shrugged off the figures before slipping following Pill's remarks, declining by 0.2% against USD on the same day.

Bank of England rate-setters have been cautious about placing excessive emphasis on official figures regarding the job market in recent months due to underlying issues with the ONS labor force survey. They have also noted volatility in earnings figures, despite the latter being based on a separate survey. However, the overall trend of a slowdown in hiring and ongoing robust wage pressures leading up to a significant increase in the statutory minimum wage aligns with findings from other surveys and data sources.

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