Britain’s labor market witnessed a notable surge in its jobless rate, coinciding with indications of diminishing inflationary pressures. These revelations emerged from the latest data release on Tuesday, prompting investors to revise their expectations concerning potential interest rate hikes by the esteemed Bank of England.
Within the three-month timeframe concluding in March, the jobless rate experienced a gradual increase, settling at 3.9%. While this figure remains historically low, it surpassed the median projection of 3.8% put forth by economists surveyed by Reuters, adding an element of surprise.
The Office for National Statistics (ONS) attributed this upturn to an augmented influx of individuals, predominantly men, actively searching for employment, thus becoming part of the labor market’s headcount. This surge in job seekers fueled the rise in unemployment figures.
Expressing concerns about the scarcity of suitable candidates to fill vacancies, the Bank of England highlighted the consequent wage hikes that contribute to inflation. The ONS data underscored sustained growth in wages, with an emphasis on basic wages, primarily propelled by the public sector. In contrast, the overall increase in total pay, inclusive of bonuses, maintained a steady trajectory.
As investors recalibrated their outlook on the likelihood of the Bank of England pausing its series of interest rate hikes at the forthcoming June meeting, the British pound experienced a decline against both the US dollar and the euro. Rate futures exhibited a 30% probability of such a pause.
Providing his insight, Samuel Tombs, the Chief UK Economist at Pantheon Macroeconomics, remarked, “The rate of wage growth is decelerating at a rapid pace, which should allow the Monetary Policy Committee (MPC) to maintain the Bank Rate at 4.50% during its next meeting scheduled for June 22.”
Offering an alternative perspective, Martin Beck, Chief Economic Advisor to the EY ITEM Club, a renowned forecasting organization, noted that the data published on Tuesday lacked unequivocal support for another rate increase in the subsequent month. Beck further elaborated, stating, “The focus now shifts to the upcoming release of inflation data on May 24, which will determine whether it presents sufficient evidence of persistent inflation, thereby justifying an MPC rate hike.”
Provisional data sourced from the UK’s tax office unveiled a noteworthy decline in the number of employees on payrolls, marking the first such contraction in over two years during the month of April. Comparing this figure to March, there was a substantial drop of 136,000 individuals.
Furthermore, job vacancies experienced a consecutive decline for the tenth time within the three-month period ending in April, reaching the lowest level recorded since mid-2021. This prolonged decrease in vacancies indicates potential challenges in the labor market.
Delving into specific wage dynamics, basic pay demonstrated a 6.7% increase in the three-month period concluding in March, compared to the corresponding period in the previous year, displaying a marginal upswing from the 6.6% growth observed in the three months ending in February. Economists surveyed by Reuters had anticipated a stronger growth rate of 6.8% in basic earnings.
The surge in basic wages primarily stems from accelerated wage growth among public sector workers, registering a remarkable 5.6% increase, representing the most substantial surge since 2003.
Inclusive of bonuses, annual pay growth maintained its trajectory at 5.8%, aligning with expectations outlined in the Reuters poll.
Simultaneously, the number of individuals unable to work due to long-term illness reached an all-time high, as conveyed by Darren Morgan, the Director of Economic Statistics at the ONS. These figures underscore the multifaceted challenges facing the labor market, prompting further analysis and consideration.
