UK wage growth slows to 5.7% as unemployment remains near record lows

UK wage growth slowed in the three months to January as economic pressures made employers more uncertain about hiring, official data showed on Tuesday.

The Office for National Statistics said that despite the difficult economic climate, the unemployment rate remained near a record low at 3.7 percent, while the employment rate was 75.7 percent, up 0.1 percentage point from the previous three-month period.

Over the past two years, this tight labor market has left many employers struggling to fill vacancies, while helping workers push through wage increases that have at least partially cushioned the shock to living standards from rising inflation.

Bank of England policymakers believe that rapid wage growth could make high inflation more resilient and that this is one of the key indicators that will determine how much interest rates will continue to rise.

The latest data could give some reassurance to policymakers. The ONS said annual growth in average total compensation – including bonuses – was 5.7 percent in the three months to January, up from 6 percent in the previous month. Excluding bonuses, wage growth slowed to 6.5 percent from 6.7 percent.

Samuel Tombs of consultancy Pantheon Macroeconomics said this is a “significant slowdown” which supports the argument for the BoE’s monetary policy committee to keep rates on hold at its meeting next week.

Alongside slower wage growth, the data showed that hiring pressures have eased further, with job vacancies falling for the eighth straight month. Layoffs have also pushed the layoff rate back to levels not seen since the Covid pandemic.

Pressure on the cost of living could also spur some people who had exited the labor market to look for work – a welcome development as a surge in post-pandemic economic inactivity threatens to weigh on the UK’s long-term growth and worsen inflationary pressures .

ONS figures showed that the proportion of the working-age population classified as economically inactive – because they are neither employed nor looking for a job – fell by 0.2 percentage points from the previous three-month period to 21.3 per cent.

This was mainly because there were fewer students outside the labor force, but the number of people reporting retirement also fell.

Thomas Pugh, an economist at accounting firm RSM, said while the labor market is still “too tight for the MPC to relax”, slower wage growth combined with fewer job vacancies and economic inactivity would make next week’s rate decision a tight one make decision .

“Take into account the sharp deterioration in financial conditions due to the collapse of the SVB and there are very good reasons for the BoE to be much more cautious now,” he said.

Others, however, think the job market remains too hot to be comfortable – with more than a million vacancies and a workforce still down by almost a quarter of a million from pre-pandemic levels.

David Bharier, head of research at the British Chambers of Commerce, said the figures underscore the need for Chancellor Jeremy Hunt to take budgetary action on Wednesday by doing more to cut childcare costs and curb record levels of disease in the UK combat workforce.