The UK labor market showed some signs of cooling as wage growth slowed for the first time in more than a year.
(Bloomberg) — The UK labor market showed some signs of cooling as wage growth slowed for the first time in more than a year.
Average earnings growth excluding bonuses fell to 6.5% from a year earlier, the Office for National Statistics said Tuesday. That’s down from a record outside the pandemic of 6.7% in the previous three-month period. Job vacancies fell 51,000 in the quarter through February.
The figures suggest an unprecedented series of Bank of England rate increases over the past year is starting to be felt in the labor market, where acute shortages of workers have driven up wages and fanned inflation. The apparent loss of momentum may encourage speculation that official borrowing costs are close to peaking.
On Monday, traders slashed bets on where they see the tightening cycle ending after the collapse of Silicon Valley Bank in the US sent shock waves across global markets. The BOE is now expected to deliver just one more 25 basis-point hike, with a move later this month only partially priced in.
Economists noted, however, that the slowdown in wage growth still leaves the labor market uncomfortably tight as the BOE battles to bring double-digit inflation back to the 2% target.
What Bloomberg Economics Says …
“The latest batch of UK jobs data indicates the labor market isn’t cooling fast enough for the Bank of England to pause its hiking cycle this month. Instead, the combination of the jobs numbers with stronger-than-expected activity and a potential near-term loosening of fiscal policy justifies one last hike at its March policy meeting. After a 25-basis point move this month, we expect rates to be put on hold at 4.25%.”
—Ana Andrade, Bloomberg Economics. Click for the REACT.
The overall rate of unemployment remained 3.7% in the quarter through January. Economists had expected the rate to tick up to 3.8%.
“Tight labor market will compel the Bank of England to tighten the screws further,” said Yael Selfin, chief economist at KPMG UK. “While the annualized three-month measure for the private sector, which is closely watched by the Bank of England, dropped to 5.5%, more timely indicators from the KPMG and REC UK report on jobs have been little changed recently.”
Prime Minister Rishi Sunak has also called for wage restraint to help meet a government pledge to cut the rate of inflation in half this year from its current 10.1%.
“The jobs market remains strong, but inflation remains too high,” said Chancellor of the Exchequer Jeremy Hunt. “Tomorrow at the budget, I will set out how we will go further to bear down on inflation, reduce debt and grow the economy, including by helping more people back into work.”
Those pleas have failed to avert strikes by hundreds of thousands of workers, mainly in the public sector, who are demanding their pay keeps pace with the fastest inflation in four decades.
In January, 220,000 working days were lost to labor disputes, bringing the total since June to 2.67 million — the most since the late 1980s when Margaret Thatcher was prime minister.
Strikes continued in February and action has escalated this week to coincide with Hunt’s budget on March 15, with walkouts by junior doctors, rail and London Underground workers, civil servants, teachers and university staff.
Pay growth in the public sector grew 4.8% compared with 7% in the private sector, though the gap between the two is narrowing. Adjusted for inflation, basic pay overall is falling at an annual rate of 2.4%.
“Wage growth may be hitting record highs but this is not being felt in workers’ pockets,” said Lauren Thomas, economist at Glassdoor. “Glassdoor’s data shows discussion around inflation and the cost of living is up 171% year-on-year.”
A turn in the labor market has been evident in recent surveys. Just last week, consultancy KPMG and the Recruitment & Employment Confederation reported that hiring activity slipped for a fifth month in February.
The downturn may be limited, however. Recent figures suggest the economy is weathering the cost-of-living crisis better than expected, and companies which faced a battle to recruit over the past year are proving reluctant to let staff go.
Redundancies in the three months through January were slightly lower than in the fourth quarter of last year. The ONS said 94,000 people were put out of work in the latest period
Moreover, labor shortages are likely to persist. Around half a million people of working age have quit the labor force since the pandemic, many citing sickness, and there are few signs of them wanting to return.
Inactivity fell by 77,000 in the three months to January as students and older workers who had retired returned to the labor force. The fall in the 16-24 age group and early retirees was slightly offset by increases elsewhere.
Those off due to long-term sickness increased to a record high. The increase in inactivity since the start of the pandemic has now fallen to 488,290, down from a peak of 641,710 in July last year.
Signs that Britons are returning to the workforce will provide some reassurance for the Treasury, who will unveil a package of reforms to bring people back to work to help ease labor shortages.
“We’ve promised to grow the economy in order to create more well-paid jobs, and we want everyone to have the same opportunity for a fulfilling work life,” said Guy Opperman, the government’s employment minister. “That’s why we’re focused on tackling inactivity, and it is encouraging to see even more people moving into jobs or taking steps to search for work.”
–With assistance from Eamon Akil Farhat.
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