(Bloomberg) — The UK labor market showed fresh signs of cooling, boosting bets that interest rates are nearing their peak, though accelerating wage growth remained above the Bank of England’s comfort zone.
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The number of salaried workers fell by 136,000 in April, the first drop since February 2021, the Office of National Statistics said on Tuesday, adding that the figure was subject to revision. Meanwhile, worker inactivity eased, with 156,000 people returning to the labor market.
Wage growth – the main indicator monitored by the Bank of England – nevertheless continued to rise. Average earnings before bonuses rose 6.7% annually in the three months through March, up from 6.6% in the period through February.
The numbers put the BOE in a difficult balancing act after raising interest rates for 12 consecutive meetings in an attempt to stave off a wage-price spiral.
On Monday, BOE chief economist Huw Pill said he “hoped” policymakers had done enough on interest rates, but warned they should monitor wage growth and labor market tightness for signs that the bank’s actions were seeping through the economy.
Private sector wages excluding bonuses are still growing at an annual rate of 7%. Crucially, a key wage metric monitored by the BOE — annualized private wage growth — accelerated to 5.9%, a level economists say is inconsistent with bringing inflation back to the 2% target.
Money markets stopped betting on rate hikes after the release. Traders now see only a 50% chance that the BOE will raise rates to 5% this year, a level that was all but certain at the beginning of the month.
The pound weakened as much as 0.5% to $1.2466 on speculation the economy could show signs of weakening. However, the moves quickly faded and the focus turned to accelerating wage growth.
The unemployment rate increased from 3.8% to 3.9%. The employment rate increased by 0.2 percentage point to 75.9%. There are now just 78,000 fewer people in work than before the pandemic and hours worked are almost back to pre-Covid levels.
The increase in employment and unemployment was driven by another sharp drop in inactivity, of those not looking for work, which was most apparent among 16-64 year olds as students returned to the labor market. However, the number of people who were inactive due to long-term illness hit another record. There are now 438,000 more long-term sick people than before Covid.
As a further sign that labor market pressures could ease, employers have scaled back hiring. The number of job postings fell for the tenth time in a row, but still remained at 1.1 million, well above pre-pandemic levels. Job openings fell in 14 of the 18 industries tracked by the ONS as employers become cautious in a deteriorating economic situation.
The layoff rate also fell. Companies have said they would rather keep staff than let them go due to hiring issues.
“It is encouraging that the unemployment rate remains historically low, but the difficulty of finding staff and rising prices are a concern for many families and businesses,” said Treasury Secretary Jeremy Hunt.
“The labor market remains resilient, but signs are starting to cool down,” said Yael Selfin, chief economist at KPMG UK. “Wage growth remains high, driven by companies competing for scarce labor and employers seeking to compensate workers for some of the high inflation and rising mortgage payments they have experienced.”
Wages have risen due to an acute labor shortage, giving workers unprecedented bargaining power.
Revenues have nevertheless failed to keep pace with double-digit inflation, a gap that has led to months of strikes that have disrupted services and hit the economy as workers, from nurses and teachers to civil servants and machinists, struggle to maintain their standard of living. Regular wages fell by 2% in real terms this year.
The ONS said 556,000 working days were lost to strikes in March, a month in which junior doctors walked out for the first time since 2016. That is the highest number since December.
–With assistance from Constantine Courcoulas, Harumi Ichikura and Mark Evans.
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