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Recent official statistics reveal that wage growth in the UK has slowed to its lowest pace in over five years. Excluding bonuses, earnings increased by 3.8% annually between November and January, a decrease from the previous 4.2% growth rate. While the unemployment rate stayed steady at 5.2%, close to a five-year high, there was a slight uptick in the number of employees on company payrolls during the last month, according to data from the Office for National Statistics (ONS).
These figures come just before the Bank of England’s Monetary Policy Committee (MPC) is due to announce its latest decision on interest rates. Expectations suggest that borrowing costs will remain unchanged. Although wage growth has weakened, pay rises have still outpaced inflation, which dropped to 3% in January. However, the recent escalation of conflict involving the US, Israel, and Iran has caused many analysts to anticipate an inflation increase going forward.
Before tensions in the Middle East increased, speculation was building that the Bank of England might reduce interest rates this week. That outlook has shifted due to rising fuel and energy prices. Yael Selfin, KPMG UK’s chief economist, noted that a rate cut now seems unlikely. She explained, “Priorities have shifted, with MPC members set to turn their attention to the new upside risks to the inflation outlook.” She added that this situation could lead to rates remaining higher for an extended period, potentially resulting in a loosening of the labor market over the coming months.
Liz McKeown, director of economic statistics at the ONS, described the labor market situation as stable overall at the start of the year. While the number of payroll employees rose slightly last month, the broader trend has been largely unchanged. The ONS report also found that average annual earnings grew by 5.9% in the public sector and 3.3% in the private sector during the three months ending in January. Additionally, job vacancies were mostly stable, with preliminary figures indicating a slight decrease to about 721,000 vacancies by February. Payroll employment increased by roughly 20,000 to 30.3 million in the same month. Despite the potential for higher inflation driven by geopolitical issues, Selfin argued it is unlikely that this would translate into significantly higher wage demands due to weak labor demand limiting workers’ bargaining power. Ashley Webb, an economist at Capital Economics, observed that recent payroll growth may signal that the sharpest declines in employment due to rising labor costs expected in April 2025 might be over, though he cautioned that the labor market remains fragile and could weaken further as increasing energy costs pressure companies to reduce employees
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