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UK wage growth remained strong in the three months to January despite still sluggish hiring, according to official data that economists said reinforces the case for the Bank of England to keep interest rates on hold today.
Annual growth in average weekly earnings, excluding bonuses, held at 5.9 per cent in the three months to January, the Office for National Statistics said on Thursday. The figure was in line with economists’ expectations.
Including bonuses, wage growth in the period edged down slightly to 5.8 per cent, from 6.1 per cent in the three months to December.
Separate figures based on tax records showed payroll employment was flat, with a marginal increase of 9,000 employees between December and January, as companies worried about slow economic growth, the threat of trade wars and imminent increases in taxes and minimum wages.
Employment increased by just 0.1 per cent over the year to January. But provisional figures for February showed some signs of confidence creeping back, with an increase of 21,000, or 0.1 per cent on the month. The initial estimate for the latest month has often been revised up in the past.
The combination of strong wage growth and sluggish hiring is challenging for the BoE’s monetary policy committee, which is expected to keep interest rates at 4.5 per cent when it announced its decision later on Thursday.
“With the labour market cooling rather than collapsing and wage growth stuck in the 5.5-6.0 per cent range, we doubt the Bank of England will cut interest rates from 4.50 per cent today,” said Ruth Gregory, at the consultancy Capital Economics. But she added: “All this leaves the Bank in a tricky position.”
Following the release of the employment data, the pound slipped 0.3 per cent to $1.296.
The MPC is worried that the jobs market could deteriorate further, but it has also become more pessimistic about the rate at which the UK economy can grow without stoking price pressures. Inflation stood at 3 per cent in January, and is set to climb higher by the middle of the year.
Andrew Bailey, the BoE governor, said last month there was a risk that tax increases introduced in the Budget could both boost prices and hit jobs more than the central bank initially expected.
However, the payroll figures suggest employment has held up better than suggested by business surveys, which had signalled sharp cuts in staffing. Vacancies also remained steady at 816,000 in the three months to February, similar to pre-pandemic levels.
Thomas Pugh, economist at the audit firm RSM UK, said that “while it would be a stretch to say that the UK labour market was strong, it’s clearly not collapsing”, adding that any further cuts would “depend, in part at least, on pay growth slowing”.
The headline measure of unemployment from the ONS, which is less reliable because of problems with the labour force survey that underpins it, also held steady at 4.4 per cent in the three months to January.
The ONS said an employment rate of 75 per cent was up on both the quarter and the year, while economic inactivity was lower at 21.5 per cent. However, these changes may reflect improvements in the accuracy of the data, rather than recent trends in hiring.