UK wage growth slowed in the three months to January as economic pressures made employers more uncertain about hiring, official data showed on Tuesday.
The Office for National Statistics said the unemployment rate remained near record lows at 3.7 per cent, despite the difficult economic climate, while the employment rate was 0.1 percentage point higher than the previous three-month period at 75.7 per cent.
Over the past two years, this tight labour market has left many employers struggling to fill posts, while helping workers win wage rises that at least partly cushioned the shock to living standards caused by soaring inflation.
Policymakers at the Bank of England believe rapid wage growth could make high inflation more persistent and it is one of the key indicators that will determine how much further interest rates rise.
The latest data could give policymakers some reassurance. The ONS said annual growth in average total pay — including bonuses — was 5.7 per cent in the three months to January, down from 6 per cent the previous month. Excluding bonuses, pay growth eased from 6.7 per cent to 6.5 per cent.
Samuel Tombs, at the consultancy Pantheon Macroeconomics, said this was a “clear slowdown” that strengthened the case for the BoE’s Monetary Policy Committee to keep interest rates on hold when it met next week.
Along with slower wage growth, the data showed hiring pressures have continued to ease, with the number of vacancies falling for an eighth consecutive month. Lay-offs have also pushed the redundancy rate back to levels not seen since before the Covid pandemic.
The cost-of-living squeeze could also be spurring some people who had left the labour market to look for work — a welcome development, because a post-pandemic rise in economic inactivity has threatened to weigh on the UK’s long-term growth and worsen inflationary pressures.
The ONS figures showed the proportion of the working age population classed as economically inactive — because they are neither in work nor looking for a job — fell by 0.2 percentage points from the previous three-month period, to 21.3 per cent.
This was largely because there were fewer students outside the workforce, but there was also a drop in the number of people who said they were retired.
Thomas Pugh, economist at the audit firm RSM, said that while the labour market was still “too tight for the MPC to relax”, slower wage growth, combined with lower vacancies and economic inactivity, would make next week’s interest rate decision a close call.
“Throw in the sharp deterioration of financial conditions, due to the collapse of SVB, and there is a very good case for the BoE to tread much more cautiously now,” he said.
However, others think the labour market remains too hot for comfort — with more than a million jobs unfilled and the workforce still smaller by almost quarter of a million than before the pandemic.
David Bharier, head of research at the British Chambers of Commerce, said the figures underlined the need for chancellor Jeremy Hunt to take action in the Budget on Wednesday by doing more to bring down childcare costs and to tackle record levels of ill health in the workforce.