UK wage growth remained stronger than expected in the three months to April, while the unemployment rate unexpectedly declined, according to official figures released just hours before the Bank of England’s latest interest rate decision.
The latest data indicated that Britain’s labour market continues to show resilience despite signs of easing demand for workers, providing policymakers with fresh evidence as they assess inflationary pressures and the outlook for interest rates.
Wage growth exceeds expectations
The figures suggest that wage pressures remain relatively firm, despite expectations that a softer labour market would moderate earnings growth.
Official data also showed that annual growth in employees’ average earnings stood at 3.4% for regular earnings, excluding bonuses, and 4.4% for total earnings, including bonuses.
When adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs, annual growth in real terms was 0.1% for regular pay and 1.2% for total pay.
Using the Consumer Prices Index measure, annual real wage growth was 0.3% for regular earnings and 1.3% for total earnings.
Unemployment rate falls
The unemployment rate unexpectedly fell to 4.9% from 5.0%, defying expectations that the labour market would continue to weaken.
The central bank is widely expected to leave interest rates unchanged at 3.75% later on Thursday.
Most policymakers believe the labour market has softened compared with recent years, reducing the likelihood of excessive wage growth.
Following Russia’s full-scale invasion of Ukraine in 2022, UK inflation peaked at 11.1%, while wage growth remained above 5% for nearly three years.
That contributed to the Bank of England’s challenge in returning inflation to its 2% target.
The central bank has previously indicated that wage growth significantly above 3% makes achieving sustained 2% inflation more difficult, particularly against a backdrop of weak productivity growth.
Payroll data and vacancies point to softer demand
The Office for National Statistics noted that the unemployment figures are based on a survey that has experienced low response rates in recent years.
However, the agency said participation levels have now recovered to near pre-pandemic levels.
Separate ONS data based on tax office records showed that the number of employees on company payrolls increased by 2,000 in May.
The payroll figures were accompanied by revisions to previous estimates.
An initially reported decline of 100,000 payroll employees in April, the largest drop since May 2020, was revised to a decrease of 53,000.
Meanwhile, job vacancies continued to trend lower.
Vacancies fell by 19,000 to 707,000 in the three months to May, marking the lowest level since early 2021.
The latest vacancy figure remains substantially below the peak of around 1.3 million recorded in 2022, when labour market conditions were at their tightest.
Public sector pay growth outpaces private sector
Annual regular earnings growth was stronger in the public sector than in the private sector.
Public sector regular pay increased by 5.1% annually, compared with 2.9% growth in the private sector.
The ONS noted that public sector pay growth continued to be influenced by differences in the timing of pay awards this year.
Among industry groups, the wholesaling, retailing, hotels, and restaurants sector recorded the strongest regular annual pay growth outside the public sector, with earnings rising by 3.5%.
The latest figures present a mixed picture of Britain’s labour market.
This post UK wage growth remains resilient as unemployment falls to 4.9% may be modified as updates unfold
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