The UK labour market continues to show surprising resilience, with official data released Thursday revealing that wage growth exceeded forecasts and the unemployment rate unexpectedly declined. The figures come just hours before the Bank of England is widely expected to hold interest rates at 3.75%.
Wage Growth Remains Firm
Annual growth in employees' average regular earnings (excluding bonuses) stood at 3.4% in the three months to April, above market expectations. Including bonuses, total earnings rose 4.4% year-on-year. In real terms, adjusted for CPIH inflation, regular pay grew 0.1% and total pay rose 1.2%.
The data suggests that wage pressures are proving stickier than anticipated, even as the labour market shows signs of cooling. The Bank of England has previously indicated that wage growth significantly above 3% complicates the task of returning inflation sustainably to its 2% target, particularly given weak productivity growth.
Unemployment Rate Falls Unexpectedly
The unemployment rate declined to 4.9% from 5.0%, defying expectations of a further rise. The Office for National Statistics noted that survey participation rates have recovered to near pre-pandemic levels, improving data reliability.
This resilience in the labour market provides policymakers with fresh evidence as they assess inflationary pressures. Most economists expect the central bank to leave rates unchanged at its meeting later Thursday, but the data could influence the tone of its forward guidance.
Payrolls and Vacancies Paint Mixed Picture
Separate ONS data based on tax records showed that the number of employees on company payrolls increased by 2,000 in May. Revisions to previous estimates softened the initially reported sharp decline in April: the drop of 100,000 payroll employees was revised to a decrease of 53,000.
Job vacancies continued to trend lower, falling by 19,000 to 707,000 in the three months to May, the lowest level since early 2021. This remains well below the peak of around 1.3 million recorded in 2022 when labour market conditions were at their tightest.
The mixed signals echo broader trends seen in other recent data. For context, the UK Private Sector PMI fell to a 14-month low as demand weakened and job cuts persisted, suggesting that the labour market may soften further in coming months.
Public Sector Pay Outpaces Private Sector
Annual regular earnings growth was stronger in the public sector at 5.1%, compared with 2.9% 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 resilience of UK wage growth and employment comes against a backdrop of broader global economic shifts. For instance, a recent ECB study found that AI adoption's impact on US jobs and wages remains muted so far, suggesting that structural changes in labour markets are still evolving.
Markets will now focus on the Bank of England's decision and any signals about the future path of interest rates. The central bank has been grappling with the challenge of returning inflation to its 2% target, a task made more difficult by persistent wage growth.
This article is for informational purposes only and does not constitute financial advice.
