UK unemployment rises unexpectedly, easing pay pressures
BRITAIN’S unemployment rate rose for the first time since July as wage growth eased, adding to evidence that the labour market is cooling and relieving some of the inflationary pressures that have concerned the Bank of England (BOE).
The jobless rate rose to 3.9 per cent in the three months through January, an unexpected increase from 3.8 per cent in the quarter to December, the Office for National Statistics said Tuesday (Mar 12). Average earnings growth, excluding bonuses, fell to 6.1 per cent in that period from 6.2 per cent; it was the fifth straight decline.
The figures indicate that the central bank’s efforts to slow demand in the economy are taking the heat out of the labour market, which had fanned upward pressure on prices. That could add to the case for policymakers to reduce interest rates later this year.
“We expect the labour market to weaken in the coming months, which should reduce momentum in wage growth and raise the prospect of interest rate cuts from the summer onwards,” said Yael Selfin, chief economist at KPMG UK.
The pound fell after the report, with sterling 0.1 per cent weaker at US$1.2801 and headed for a second day of losses. The currency had rallied to an eight-month high of US$1.2894 on Friday, on signs that the nation’s economy is holding up better than expected, potentially keeping interest rates higher for longer.
While the current levels of pay growth remain above the rate the BOE says is compatible with its 2 per cent inflation target, the latest data raises confidence that the indicator is moving in the right direction.
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The report also showed:
- Vacancies fell 43,000 on the quarter to 908,000 in the period through February, the 20th consecutive decline from a peak of around 1.3 million in 2022.
- The number of inactive people, neither in work nor looking for a job, fell by 28,000 to 9.25 million in the three months to January, compared with the quarter to December.
- Employment was unchanged and unemployment rose by 38,000.
BOE rate-setters are moving cautiously toward cutting interest rates from a 16-year high of 5.25 per cent. They are watching wage settlements for April closely, since many workers receive their latest pay rise then.
Workers on the National Living Wage will also get a pay boost of almost 10 per cent in April, increasing staff bills for many businesses. A recent survey by the BOE suggests that firms expect pay rises of more than 5 per cent over the next 12 months.
Markets have pushed further into the future their expectations for when the BOE will deliver its first rate cut since the start of the pandemic. Investors now have fully priced in a cut in August, three months or more later than anticipated at the start of the year. The BOE will give an update of its thinking next week, when economists expect no change in rates. BLOOMBERG
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