UK wage growth accelerated in the three months to April amid rising employment, underscoring the strength of the labor market but also the Bank of England’s challenge to reduce inflation.
The Office for National Statistics said average private sector wages, excluding bonuses, were 7.6% higher than a year earlier in the three months, the fastest pace of growth on record outside of the period of the coronavirus. Average wages in the public sector were 5.6% higher.
For all employees, annual growth in total compensation, including bonuses, accelerated to 6.5%, faster than analysts had expected.
Although wages are still not rising fast enough to match the rate of increases in the cost of living for households, economists said wage growth was well above levels consistent with the inflation target of 2 % from the Bank of England, underscoring the case for the central bank to continue raising interest rates.
“If there was still any doubt about the stance of monetary policy, this data should shore up a further interest rate hike from the Bank of England next week and likely more in the months ahead,” he said. Yael Selfin, chief economist at KPMG.
Thomas Pugh, an economist at audit firm RSM UK, said the data suggested another quarter-point interest rate hike at next week’s monetary policy meeting – which would take the rate of BoE benchmark at 4.75% – was now a “safe bet”. ”.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said wage growth had “far too much momentum” for the monetary policy committee to stop raising rates. Although analysts had expected the increase in the statutory minimum wage in April to lead to a one-time increase in wages, he noted, the data shows that wage growth was mainly driven by higher-paying sectors such as than finance and manufacturing and could therefore be expected to continue. at a similar rate.
Although hiring has slowed sharply over the past year – with ONS data showing a further fall in the number of vacancies – the data contained few other signs of weakness. A previous drop in the number of employees on payroll has been revised. The ONS said the unemployment rate averaged 3.8% in the three months to April, down from 3.7% in the previous quarter, but down from last month.
Meanwhile, the number of people in employment has reached a record high, although the employment rate, at 76%, remains below its pre-pandemic level. The share of UK adults choosing not to work or seek employment remains higher than before the pandemic, with no further decline in the economic inactivity rate over the past month, although it has fallen by 0.4 percentage points from the previous quarter to 21%.
Tony Wilson, director of the Institute for Employment Studies, a research group, said there were “clear signs that weak labor supply is holding back growth”, with more a million vacancies, but 1.8 million people outside the labor force wanting to work, including almost half a million more with long-term health problems than before the pandemic.
Jane Gratton, head of people policy at the UK Chambers of Commerce, said while the low unemployment rate was a positive, ‘the labor market continues to be incredibly tight, causing additional problems and costs for employers’ .
Jeremy Hunt, Chancellor, said the figures showed rising prices were “still eating away at people’s paychecks”, making tackling inflation a priority.