Wages in the UK have risen for the third consecutive month, while the unemployment rate remained unchanged, according to the latest data from the Office for National Statistics (ONS). In the three months to December, average weekly earnings increased by 6%, while wages excluding bonuses grew 5.9%, surpassing economists’ expectations of a 5.8% rise.
The figures indicate a period of wage recovery following a year of declines. However, some analysts question whether this trend will persist, given ongoing economic uncertainties.
Wage Growth Amid Economic Challenges
The sustained rise in wages comes at a time when inflationary pressures remain a concern. Higher wages can contribute to inflation, as increased earnings may lead to higher consumer spending. The Bank of England (BoE) has been attempting to bring inflation under control, aiming for its 2% target.
Even after accounting for inflation, wages have shown real-term improvements in recent months. However, other labor market indicators suggest potential weaknesses. The number of job vacancies has continued to decline, although at a slower pace.
The total number of vacancies remains slightly above pre-pandemic levels, suggesting that hiring activity has softened but has not yet returned to pre-COVID lows.
Unemployment Rate Steady at 4.4%
Contrary to expectations of an increase, the unemployment rate held steady at 4.4%. This stability was unexpected, as many economists had anticipated a slight rise, reflecting concerns over the slowing economy.
However, the ONS has advised caution when interpreting the unemployment figures, citing concerns over the reliability of the data. A significant issue affecting accuracy is the low response rate to ONS telephone surveys, making it difficult to determine the exact number of unemployed individuals.
This data collection challenge raises questions about how accurately the figures represent the true state of the labor market.
Falling Job Vacancies and Labor Market Trends
The labor market has shown signs of softening, with a continued decline in job vacancies. The number of unfilled positions has been falling for several months, though the rate of decline has slowed compared to previous periods.
Despite this, vacancies remain above pre-pandemic levels, suggesting that while businesses are reducing hiring, demand for workers has not collapsed. The slowdown in vacancy declines could indicate a more balanced job market, where wage pressures remain but are not necessarily leading to widespread job losses.
Impact on Interest Rate Expectations
The stronger-than-expected wage growth has had an impact on interest rate expectations. Before the report’s release, traders had priced in a 28% chance of a BoE interest rate cut in the coming months.
Following the announcement, this probability fell to 25%, as rising wages can fuel inflation and may lead the Monetary Policy Committee (MPC) to delay rate cuts.
The BoE has been cautious about lowering rates too soon, as persistent wage growth could prolong inflationary pressures. A key factor in future rate decisions will be whether wage growth slows down in the coming months, easing pressure on inflation.
