The UK’s labor market shows signs of strain as unemployment rises to 4.3%, accompanied by a slowdown in wage growth.
- Wage growth, excluding bonuses, exceeds analyst expectations at 4.8% but is down from the previous period’s 4.9%.
- Unemployment has increased from 4% to 4.3%, although economic inactivity has decreased to its lowest in nearly a year.
- The Bank of England’s chances of cutting interest rates in the near future have diminished, with experts predicting a hold at 4.75% next month.
- Despite the current economic outlook, the pound weakens against the dollar, reflecting concerns about inflation.
The UK workforce is experiencing increased pressure as the latest figures indicate a rise in unemployment to 4.3%. This increase is coupled with a deceleration in wage growth, which excludes bonuses and currently stands at 4.8%. Although slightly higher than the predicted 4.7%, it marks a decline from the previous quarter’s 4.9%. The inclusion of bonuses in wage calculations shows a rise of 4.3%, up from 3.9% previously.
Unemployment’s rise from 4% to 4.3% coincides with a reduction in economic inactivity, which has dropped to its lowest in over a year at 21.8%. This mixed outlook has caused economists to reconsider the likelihood of another interest rate cut by the Bank of England. Previously, the Bank reduced rates by 25 basis points to 4.75%, and given current data, analysts are now less confident about further cuts in December, especially with the recent increase in the minimum wage announced in the Chancellor’s Budget.
Bank of England Chief Economist, Huw Pill, stated that wage growth, while persistent at elevated levels, poses a challenge to achieving the Bank’s 2% inflation target. The Monetary Policy Committee (MPC) has emphasized the need for stable wage growth to manage inflation effectively in the long term. Nomura analysts suggest that the higher-than-expected wage figures might be an anomaly within a broader declining trend. If future reports show subdued wage growth, interest rate cuts might resume in February. However, the market forecasts stable rates at 4.75% for the next cycle.
Despite the softer economic data, the pound decreased by 0.39% against the dollar, settling at $1.281. Concurrently, the yield on 10-year UK government bonds climbed to 4.445%. These movements reflect ongoing concerns about inflationary pressures. Liz McKeown, ONS Director of Economic Statistics, cautioned that such data should be interpreted carefully due to recent changes in data collection methods. She noted, ‘Growth in pay excluding bonuses eased again this month to its lowest rate in over two years,’ pointing out the effect of one-off public sector payments on bonus-included figures.
The Bank of England continues to closely watch labor market dynamics, understanding that inflation and wage changes will significantly influence future interest rate policies.
The current labor market trends indicate ongoing challenges as the UK navigates inflation and employment dynamics.
