Britain’s labour market loosened, with an unexpected increase in the unemployment rate and a slowing in the pace of pay increases, tempering concerns at the Bank of England about inflationary forces.
The jobless rate rose to 3.9 per cent in the three months through January, the first increase since July and above the 3.8 per cent rate recorded in the previous period. the Office for National Statistics said Tuesday. Average earnings growth excluding bonuses fell to 6.1 per cent in that period from 6.2 per cent previously and a fifth straight easing.
The figures will allay some concerns over rapid wage increases that have made the BOE wary over signalling it’s ready to reduce borrowing costs. While the current levels of pay growth remain above the rate the BOE says is compatible with its 2 per cent inflation target, the latest data increase confidence that the indicator is moving in the right direction.
BOE rate-setters are moving cautiously toward cutting interest rates from a 16-year high of 5.25 per cent. They’re watching wage settlements for April closely, since many workers receive their latest pay rise then.
Workers on the National Living Wage will also get a pay boost of almost 10 per cent in April, increasing staff bills for many businesses. A recent survey by the BOE suggests that firms expect pay rises of more than 5 per cent over the next 12 months.
Markets have pushed further into the future their expectations for when the BOE will deliver its first rate cut since the start of the pandemic. Investors now have fully priced in a cut in August, three months or more later than anticipated at the start of the year. The BOE will give an update of its thinking next week, when economists expect no change in rates. – Bloomberg
