Strong UK pay growth boosts chance of Bank of England rate rise
Send a link to a friend
[April 18, 2023] By
David Milliken
LONDON (Reuters) -British wages rose faster than anticipated last month,
in a move that economists judge may tip the Bank of England towards a
further rise in interest rates next month, despite an unexpected
increase in joblessness too.
The Office for National Statistics (ONS) said the unemployment rate
edged up to 3.8% - its highest since the second quarter of 2022 - rather
than holding at 3.7%, as forecast by economists in a Reuters poll.
Annual pay growth for the three months to January was revised up to 5.9%
and held at that level for the three months to February - above all
forecasts in the Reuters poll, which had pointed to a drop to 5.1%.
Excluding bonuses, wage growth held at 6.6%.
Sterling strengthened and government bond yields rose to a one-month
high after the data, as financial markets saw a more than 80% chance of
the Bank of England (BoE) raising interest rates to 4.5% in May to help
bring down inflation, which was above 10% in February.
![](http://archives.lincolndailynews.com/2023/Apr/18/images/ads/current/LPL_small%201.gif)
"For those of us expecting the Bank of England to keep interest rates
unchanged next month, the latest surprise pick-up in UK wage growth
undoubtedly puts a spanner in the works," said James Smith, economist at
ING.
High inflation meant that in real terms, average earnings in the three
months to February were 4.1% lower than a year earlier, one of the
biggest annual drops since ONS records started in 2001.
Discontent about pay has been especially high in the public sector,
leading to widespread industrial action since late last year. Junior
doctors are the latest group to strike, seeking a 35% pay rise to
compensate for below-inflation pay rises over more than a decade.
COMING OFF THE BOIL?
The BoE has said pay growth will be a key factor in its assessment of
whether last year's surge in inflation to its highest in more than 40
years will create a lasting inflationary dynamic in Britain, which now
has higher inflation than the United States or the euro zone.
Earlier this month, BoE Chief Economist Huw Pill said he saw signs that
pay growth might be slowing, but that it was too early to say the BoE's
job was done on interest rates, which it has increased 11 times since
December 2021.
[to top of second column] |
![](../images/041823PIX/busine68.jpg)
People walk past a branch of Jobcentre
Plus, a government run employment support and benefits agency, as
the outbreak of the coronavirus disease (COVID-19) continues, in
Hackney, London, Britain, August 6, 2020. REUTERS/John Sibley/File
Photo
![](http://archives.lincolndailynews.com/2017/Jul/22/images/ads/current/rohlfs_lda_072017.png)
However, Jack Kennedy, economist at recruitment website Indeed, said
there were signs the labour market was "coming off the boil".
Tuesday's ONS data showed a further fall in the number of job
vacancies - though they remain 30% higher than before the COVID-19
pandemic - and Kennedy said Indeed data showed fewer employers were
offering bonuses to new starters than last year.
Economic inactivity dropped sharply over the quarter to its lowest
since May 2022 at 21.1%, due largely to a jump in the number of
students seeking jobs. But long-term sickness in the working-age
population - a major problem since the pandemic - rose to a record
high in absolute terms.
Despite a hefty increase of 169,000 over the past three months in
the number of people in work - more than three times the increase
forecast in a Reuters poll - the total number of people in work
remains slightly below pre-pandemic levels.
Every other major rich economy has seen employment rates fully
recover from the pandemic.
"Progress in the labour market is painfully slow," said Tony Wilson,
director of the Institute for Employment Studies. "Three years on
from the start of the pandemic, it's clearer than ever that we are
being left behind by other major economies."
![](http://archives.lincolndailynews.com/2023/Apr/18/images/ads/current/chicagost_sda_SFARM_2023.png)
Employment minister Guy Opperman said the government would require
some unemployed people to spend more time with employment advisers
and was providing extra training and childcare funding.
(Additional reporting by Sachin RavikumarEditing by William
Schomberg, Angus MacSwan and Mark Potter)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |