UK wage growth slows, bolstering case for Bank of England rate hold

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UK wage growth and BoE rate

Highlights

UK private sector weekly earnings growth excluding bonuses slowed to 2.9 per cent in the three months to April, the weakest pace in over five years.
Payroll employment in April fell 0.5 per cent, or 138,000 jobs, from a year earlier, indicating softening job market conditions despite upward revisions.
Sterling rose 0.2 per cent to $1.332 after prior declines, as weaker wage growth and hiring patterns bolster expectations for a Bank of England rate hold.

Labour market data before policy meeting

As reported by the Office for National Statistics, annual growth in UK private sector weekly earnings excluding bonuses slows to 2.9 per cent in the three months to April, from 3.1 per cent in the three months to March. The reading marks the weakest pace in more than five years and reinforces the case for the Bank of England to leave interest rates unchanged at its meeting on Thursday.

Regular pay growth across the whole economy remains steady at 3.4 per cent, stronger than the 3.2 per cent expected by analysts. The wage figures arrive alongside weaker hiring trends, adding to evidence that conditions in the jobs market are softening.

Payroll employment in April is down 0.5 per cent, or 138,000 jobs, from a year earlier, although that is an upward revision from an earlier ONS estimate. Provisional figures for May suggest payroll employment is broadly unchanged.

Market reaction and wider implications

Martin Beck, chief economist at WPI Strategy, says revisions to earlier data indicate the jobs market is "not in quite as much trouble as previously feared", but he adds that the broader trend remains clear as employment weakens and pay growth slows. He says the latest figures make the case for a Bank of England rate rise this week look even thinner.

Liz McKeown, ONS director of economic statistics, says the number of new recruits is at its lowest level in five years. In currency markets, sterling is 0.2 per cent stronger against the dollar at $1.332, recovering some ground after a 1 per cent fall on Wednesday when the Federal Reserve vows to contain inflation.

UK wage growth and unemployment data ahead of the Bank of England’s rate decision were the focus of our earlier coverage, highlighting that pay growth remained above levels seen as consistent with stable inflation. We noted that policymakers were still expected to keep rates at 3.75% while weighing whether energy-price volatility could revive inflation pressures or whether a softer jobs market would limit wage demands.

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