The UK unemployment rate ticked downward in the three months to April, while pay growth picked up, figures from the Office for National Statistics showed, piling pressure on the Bank of England to keep raising interest rates.
Economists said the data reinforced views that the Bank's monetary policy committee will raise the base rate to 4.75% at next week’s meeting, with markets also quickly moving to price in peak interest rates of 5.7% by next February, up 12 basis points.
In the three months to April, annual growth in average total pay, including bonuses, picked up to 6.5% from 6.1% in the three months to March. This came above market consensus, which expected pay growth to hold steady.
Excluding bonuses, annual average earnings growth was 7.2% in the three months to April, compared to 6.8% in the previous three months. This was above expectations of 6.9% growth.
After taking inflation into account, average pay including bonuses fell by 2.0% in the year to February to April, or 1.3% excluding bonuses.
— Office for National Statistics (ONS) (@ONS) June 13, 2023
Samuel Tombs at Pantheon Macroeconomics noted that “the renewed pick-up in wage growth in April will add fuel to the recent rise in gilt yields and expectations for the future path of Bank Rate, by fanning the impression that the UK has a unique problem with ingrained high inflation.”
“The rise in overall average wages also was driven by momentum in higher-paying sectors, such as financial and business services.
“This points to a high risk of ongoing momentum over the coming months,” he felt.
Unemployment edged down to 3.8% in the three months to April from 3.9% in the three months to March while in March to May, vacancies fell 79,000 on the quarter to 1.1mln.
"Vacancies fell on the quarter for the 11th consecutive period and reflect uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment," the ONS said.
Tombs reckons the outlook for a further increase in labour market slack, the absence of any further changes in minimum wages for another 12 months, and the likelihood of a further fall in the headline rate of CPI inflation driven by lower energy prices, should mean that wage growth loses momentum over the next six months.
“We remain unconvinced, therefore, that the MPC will need to increase Bank Rate all the way to 5.5% by the end of this year, as markets expect; a 5.0% peak still looks more likely to us,” he added.