Market Analysis

UK Pay Surges Beyond Expectations as BoE Considers Rate Cuts

Amos Simanungkalit · 14 May 2024809 Views

British wages, excluding bonuses, grew by a stronger-than-expected 6.0% in the first quarter of 2024 compared to the same period the previous year, according to recent data. This surpassed economists' predictions of a 5.9% increase, which would have been lower than the 6.0% growth observed in the three months leading up to February.

The Bank of England (BoE) is closely monitoring wage growth for any signs that it could reignite high inflation, although it indicated last week that it might begin reducing interest rates from their current 16-year high of 5.25% as soon as June.

These figures are the first of two labor market reports from the Office for National Statistics (ONS) that the BoE will review before its next meeting.

Finance Minister Jeremy Hunt, aiming to assist Prime Minister Rishi Sunak in narrowing the opposition Labour Party's significant lead in the polls ahead of this year's election, highlighted the fact that wages are rising faster than inflation.

"This marks the 10th consecutive month of wages outpacing inflation, which will help alleviate cost-of-living pressures on families," Hunt said in a statement.

Total pay, including volatile bonus payments, increased by 5.7%, exceeding economists' expectations of a 5.5% rise.

Private sector regular pay, a key metric for the BoE, slightly decreased to 5.9% from 6.0% in the three months to February.

Following the release of these figures, the sterling briefly rose against the U.S. dollar.

Despite the persistently strong wage growth, Tuesday's data also showed some signs that the UK's labor market is cooling.

The ONS reported that the unemployment rate rose to 4.3%, its highest level since the three months ending July 2023. However, it noted that the survey used to calculate the unemployment rate is still undergoing revisions.

"We continue to observe tentative signs of a cooling job market, with declines in both employment from our household survey and the number of workers on payroll," said Liz McKeown, ONS's director of economic statistics.