The UK’s unemployment rate was at its lowest level in 48 years during the first three months of 2022. Employers paid higher bonuses to retain or recruit staff, according to data that was compiled from investors betting on future interest rate increases by the Bank of England.
The Office for National Statistics reported Tuesday that core earnings for most workers dropped by the largest amount since 2013 when they were adjusted for rising inflation.
However, total pay and bonuses increased 7.0% compared to a year ago. This is far higher than the economists’ average forecast of 5.4%.
Sterling rose 1.1% against the U.S. Dollar and rose 0.6% against the euro. Investors had a 30% chance of the BoE’s Monetary Policy Committee raising interest rates by half a point in June.
The unemployment rate fell to 3.7%, from 3.8% – lower than forecasts by Reuters for it to stay steady – and the number out of work was smaller than the job vacancies available for the first record.
Philip Shaw, an economist at Investec said that “We were taken aback today’s labour-market release, especially considering the fears of a decline in the economy.” It will not reduce the MPC’s concern about inflationary pressures.
The BoE is concerned that higher than normal pay growth could become a channel through which the energy-driven surge in inflation may be entrenched.
Consumer price inflation was 7.0% for March. Official figures due Wednesday will show that it reached 9.1% in April when an increase of 54% in energy tariffs came into effect.
According to the BoE, further price increases will cause the economy to slip into recession by 2022. This will lead to an increase in unemployment.
Some economists however believe Tuesday’s data shows that the central bank underestimated labour market heat, at the very least for the moment.
“While the BoE was cautious at its last meeting, data speak louder than MPC rhetoric. We remain confident that rates can rise again by 25 basis points in June,” Allan Monks, an economist at J.P. Morgan stated.
STABLE PAY RISES – BUT ONLY FOR SOME
The data from Tuesday showed that pay was rising in certain sectors, with total pay increasing by 9.9% in March. However, the benefits of a tight labour market are not evenly distributed.
Builders and bankers are doing well, but public sector workers face the greatest pay cut.
The average pay for regular workers rose 4.2%, slightly less than was expected.
Inflation-adjusted, basic pay was 2.0% less than one year ago. This is the largest fall since September 2013.
Governor Andrew Bailey stated that a decline in living standards is likely due to the energy price shock and that workers in strong positions in the labour market would be disproportionately benefited by a push for higher wages.
Samuel Tombs, Pantheon Macroeconomics’s Pantheon Macroeconomics’s, stated that the uneven nature of wage growth should cause the BoE to pause before raising interest rates. Financial markets anticipate that they will reach 2.0-2.255% by the end.
He said, “These numbers shouldn’t make the MPC panic over wage growth.”
Despite the economy being stagnant in February and March, the labour market is strong.
Although the number of people working increased by 83,000 in the first quarter, it is still 444,000 lower than before the COVID-19 pandemic. This is largely due to the increase in long-term illness and early retirement.
But Tuesday’s data showed that there were some signs that this might be happening. The largest percentage of people who have moved from inactivity to work since 2001, when these records were created, was shown to be Tuesday’s data.
