Pay growth ‘obstinately high’ as market points to inflation and rate fears   


UK average earnings growth eased to 6% in the three months to February, according to the Office for National Statistics — but analysts say this “obstinately high” pay data will hinder inflation from falling and does not favour early Bank of England rate cuts.  

Earnings fell back from 6.1% in the three months to January – although this is faster than the 5.8% expected by economists.  

Also, real average weekly pay lifted 2.1% after taking inflation into account, its fastest rate since September 2021.  

This data comes ahead of the latest UK inflation figures due to be published tomorrow, with general prices currently at 3.4%, ahead of the Bank’s 2% target.  

UK markets are now betting on around two quarter-point cuts this year starting in the second half of the year, rather than three.  

Also, Bank rate is now seen falling to around 4.75% by the end of 2024, down from 5.25% today, having previously been expected to drop to 4.5% by December.     

Hargreaves Lansdown head of money and markets Susannah Streeter says: ”Average wage growth is still obstinately high, with growth slowing more gradually than expected. It’s likely to make the Bank of England that bit more reticent about cutting interest rates.  

“Even though headline inflation is on track to hit its target in the next few months, policymakers are concerned that persistently high pay might cause it to pop back up, and this snapshot does very little to alleviate those fears.”  

Deutsche Bank chief UK economist Sanjay Raja adds that this pay growth “wasn’t what the [the Bank’s rate-setting] MPC wanted to see”.  

However, the ONS adds that the unemployment rate increased to 4.2% in February from 3.9%, above the 4% expected by economists.  

Analysts say the cooling effects of higher interest rates were leading to more redundancies and discouraging employers from hiring staff.  

Thinktank the Resolution Foundation adds that the official data shows that economic inactivity has risen to its highest level since 2015 among working-age people.  

AJ Bell head of financial analysis Danni Hewson points out: “For months we’ve been watching cracks begin to form in the UK jobs market as the post-pandemic boom faded and the cost-of-living crisis forced businesses to retrench.  

“Vacancy numbers have fallen again and again, and though they’re still above where they were before Covid lockdowns the fact that unemployment has also been rising suggests a huge disconnect between the jobs available and workers free to fill them.”

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