UK wage growth slowed less than expected in the fourth quarter, underscoring the case for the Bank of England (BOE) to wait before cutting interest rates. 

Wages excluding bonuses rose 6.2 per cent from a year earlier, down from an upwardly revised 6.7 per cent in the three months through November, the Office for National Statistics said on Tuesday (Feb 13). Economists had forecast a reading of 6 per cent. 

The figures suggest the labour market is not cooling fast enough to satisfy policymakers worried about the threat of a wage-price spiral. Inflation is widely forecast to hit the 2 per cent target in the spring, albeit briefly, but money markets expect the BOE to hold interest rates at a 16-year high until June at the earliest.

The pound reversed losses versus the US dollar after the data, trading 0.1 per cent stronger at US$1.264.

Bets on how far the BOE will lower rates this year have been scaled back in recent weeks, with officials saying more evidence is needed before they can be sure that price pressures have been brought to heel. 

At current rates, wage growth remains incompatible with delivering 2 per cent inflation sustainably. On Monday, governor Andrew Bailey said the economy was now showing signs of an upturn after a period of stagnation. 

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Unemployment was 3.8 per cent in the final quarter of the year, lower than forecast and down from 3.9 per cent in the period through November, according to newly reinstated Labour Force Survey (LFS) estimates published today. 

However, economists are cautioning against placing too much weight on the data due to ongoing concerns about their quality. The LFS was suspended in October owing to a falling response rate,  and it is likely to be months before the problems are fully resolved. 

The labour market data kick off a week a crucial economic data in the UK, with attention focused on inflation figures tomorrow that are expected to show price growth ticking higher in January due to base effects and higher air fares. 

But both economists and the BOE expect the consumer price index to drift back to target in the second quarter. 

It means households are enjoying a return of real spending power. That is a boost for Prime Minister Rishi Sunak in a week when his Conservative Party is bracing for losses in two special elections on Thursday and official data is expected to show that the economy slipped into a shallow recession in the second half of 2023. BLOOMBERG