Pressures in the UK labour market are starting to ease, but wage growth has not slowed as much as economists expected, according to official data released on Tuesday.
Figures from the Office for National Statistics showed average wages in the private sector, excluding bonuses, were 6.9 per cent higher in the three months to February than a year earlier, down from growth of 7.3 per cent in the final quarter of 2022. Public sector wage growth still lags the private sector but has picked up, with average wages excluding bonuses up 5.3 per cent on the year.
The new data leaves Bank of England policymakers with a finely balanced decision on whether to raise interest rates at its May meeting.
The slowdown in wage growth — one of the key indicators monetary policymakers are tracking — is more gradual than expected, partly due to revisions to January’s figures. However, other developments suggest the labour shortages that have fuelled wage rises are starting to ease.
The unemployment rate edged up to 3.8 per cent from 3.7 per cent the previous quarter, the number of vacancies fell for a ninth consecutive month and the number of people choosing not to work or seek a job fell as students finished their courses and returned to the workforce.
This boosted the employment rate, which rose by 0.2 percentage points from the previous three-month period to 75.8 per cent. However, most of the growth was driven by part-time work and self-employment rather than by employers creating new posts.
Samuel Tombs, at the consultancy Pantheon Macroeconomics, said this showed the labour market was “not nearly as hot as the employment figures imply”. However, the revisions to the figures for wage growth meant it now looked like a “toss-up” as to whether the monetary policy committee would hold off raising interest rates in May or opt for a further 0.25 percentage point increase, he added.
But Thomas Pugh, economist at the audit firm RSM, said the data suggested “the labour market is not easing quickly enough for the MPC to be comfortable”, pointing to another interest rate increase in May and potentially further rises beyond that.
Despite the rise in employment, the UK workforce remains smaller than it was before the pandemic. The number of working-age people who are economically inactive is still more than 400,000 higher than its pre-pandemic level, and almost all of this increase now represents people who say they are not working because they have a long-term health condition.
“Progress in the UK labour market is painfully slow,” said Tony Wilson, director of the Institute for Employment Studies. “Three years on from the pandemic, it’s clearer than ever that we are being left behind by other major economies.”
Business groups said recruitment difficulties remained intense.
“The defining feature of our labour market right now is still labour shortage,” said Neil Carberry, chief executive of the Recruitment & Employment Confederation, adding that things were “not as fizzy” as in 2022, and that pay was “rising strongly… but not at a rate that will cause further inflation”.
Jane Gratton, head of people policy at the British Chambers of Commerce, said that unfilled jobs remained “a drag anchor on firms, preventing them from fulfilling orders and taking on new work”. She called for swift implementation of the government’s plans to expand free childcare, and a “pragmatic” approach to broadening the list of shortage occupations for which immigration requirements are relaxed.
Guy Opperman, minister for employment, said the government was boosting training and childcare to “break down barriers for people out of work”, while increasing the statutory minimum wage and extending cost of living support payments.