Although other data released on Tuesday revealed a slowing in the UK labor market, basic pay in Britain increased more fast again in the final three months of 2022, highlighting the Bank of England’s concerns about inflationary heat in the economy.
Britain’s unemployment rate remained near to five-decade lows despite the country being on the verge of a recession, while employment increased. With the exception of the coronavirus pandemic, when changes in income were affected by worker furloughs, pay excluding bonuses increased by 6.7%, marking the greatest gain since records began in 2001.
The Office for National Statistics (ONS) reported that total pay increased by 5.9% annually from October to December, which was the slowest increase since the three months ending in July of last year. However, it was mostly due to an abnormally strong growth in bonuses in late 2021.
Reuters polled economists, who predicted a 6.5% gain in the ex-bonuses metric and a 6.2% increase in overall pay. The BoE is keeping an eye on the rate of pay growth in Britain as it determines how much higher to hike interest rates after doing so 10 times in a row since December 2021. It has provided a hint that the streak might be coming to an end.
Following the release of the statistics, sterling appreciated versus the dollar and the euro before reversing course. Investors modestly upped their wagers on the BoE, increasing interest rates by another quarter-point in March.
What Keeps Unemployment Low In UK
The labor market was anticipated to cool, but Tuesday’s figures indicated that it might keep the economy’s inflationary heat for a few more months. And since activity ended the previous year a little bit stronger than the Bank had anticipated, Webb added, “We believe the Bank of England may have one or two more rate hikes in the works.”
Despite the faster-than-average rate of pay increases, workers are nevertheless experiencing income erosion due to inflation, which is still around 10%. The last three months of 2022 saw the greatest drop in total pay since early 2009, falling 4.3% when adjusted for the consumer price index that the BoE targets.
According to the Reuters survey, the jobless rate maintained a steady at 3.7% in the three months leading up to December, which is not much more than its lowest point in nearly 50 years. For the sixth consecutive month, vacancies decreased from November to January, falling by 76,000 to 1.134 million.
The percentage of people who are neither working nor seeking for job decreased to 21.4% in the three months leading up to December, a 0.3 percentage point decrease from the three months prior. According to the ONS, a record number of persons left economic inactivity between October and December as more and more went back to work, potentially allaying one of the BoE’s concerns about the labor market.
Before presenting his yearly budget to parliament on March 15, British Finance Minister Jeremy Hunt is putting the finishing touches on initiatives to increase the rate of activity. The ONS said that while the unemployment rate increased to 1.1 by the end of 2022, it was still lower than pre-pandemic levels of roughly 1.6.
