The UK job market showed signs of weakening, as the unemployment rate unexpectedly rose, coupled with a gradual slowdown in wage growth. This has somewhat alleviated the Bank of England’s (BOE’s) concerns regarding prospective inflationary pressures. The unemployment rate escalated to 3.9% spanning the three months until January, the first surge since last July and surpassing the 3.8% rate observed in the prior period, according to the Office for National Statistics’ announcement on Tuesday. Simultaneously, the increment in average earnings, excluding bonuses, descended to 6.1% in this duration from the previous 6.2%, constituting the fifth consecutive moderation.
These statistics offer some reassurance regarding concerns over swift wage growth that had led the BOE to be hesitant in indicating its readiness to decrease borrowing costs. Even though recent wage growth rates exceed what the BOE believes to be congruent with its 2% inflation aim, the newest data boosts faith that this factor is progressing in the desired direction.
The BOE’s decision-makers are tentatively leaning towards reducing interest rates from a record 16-year peak of 5.25%. The authorities are monitoring wage agreements in April attentively, given that a large number of employees receive their latest salary increments at this time.
A near 10% wage enhancement is on the cards in April for those earning the National Living Wage, leading to increased wage expenses for several businesses. A BOE’s recent survey reveals companies anticipate wage elevations exceeding 5% within the upcoming 12 months.
Investors’ predictions for the BOE’s inaugural rate reduction since the pandemic’s onset have shifted increasingly further into the future. It is now fully expected in August, at least three months later than originally projected at the year’s commencement. Economists predict no rate changes when the BOE offers an update on its strategies next week. – Bloomberg.