UK Wage Growth Slows but Real Earnings Rise at Fastest Pace in 2.5 Years

UK wage growth slows but real pay rises at fastest pace in 2.5 years, as unemployment jumps, signaling a loosening labor market that could delay Bank of England rate cuts.

Trim Correspondents
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UK Wage Growth Slows  but Real Earnings Rise at Fastest Pace in 2.5 Years

UK Wage Growth Slows but Real Earnings Rise at Fastest Pace in 2.5 Years

The latest data from the Office for National Statistics (ONS) reveals that regular pay growth in the UK slowed to 6% in the three months to the end of February, down from 6.1% in the previous period but still higher than the expected 5.8% rate. Total pay, including bonuses, remained unchanged at 5.6%. The level of private sector earnings growth, closely watched by the Bank of England, fell to 6%, the lowest figure since June 2022.

Despite the nominal slowdown in wage growth, workers received their highest pay increase in real terms (after accounting for inflation) for two and a half years, rising by an average of 2.1% over the previous year. The Bank of England is monitoring wage growth as it is concerned that high levels could fuel persistent inflation, particularly in the labor-intensive services sector.

The ONS data also showed that unemployment jumped to 4.2% , higher than the previous estimate of 4%, indicating a less tight labor market. However, the ONS cautioned about volatility in the unemployment data due to falling response rates. Vacancies fell for the 21st consecutive quarter, another sign of a loosening labor market, though demand for labor still remained above pre-pandemic levels.

Why this matters: The stronger-than-expected wage growth could delay the Bank of England's plans to cut interest rates later this year. The mixed image presented by the labor market data will likely influence the Monetary Policy Committee's decision on when to start cutting rates, with the impact of the April increase in the minimum wage being a key factor to consider.

Commenting on the latest figures, an ONS spokesperson stated, "Regular pay growth slowed slightly in February, but still remains strong by historical standards. With inflation easing, this resulted in the highest real earnings growth in two and a half years." The spokesperson added that while the labor market remains tight, there are signs of it softening, with unemployment rising and vacancies falling for the 21st consecutive quarter.

Key Takeaways

  • UK regular pay growth slowed to 6% in Feb, down from 6.1%.
  • Real pay increased 2.1% YoY, highest in 2.5 years, despite slowdown.
  • Unemployment rose to 4.2%, indicating a less tight labor market.
  • Wage growth could delay BoE's plans to cut interest rates this year.
  • Labor market remains tight, but shows signs of softening with falling vacancies.