UK wage growth slows again but BoE likely to remain on alert

Unemployment rate unchanged but signs point to cooling jobs market

By William Schomberg and Suban Abdulla

LONDON (Reuters) -British pay grew at the weakest pace in more than a year at the end of 2023 but the slowdown was probably not significant enough to spur the Bank of England into quicker action towards cutting interest rates.

Sterling strengthened against the U.S. dollar and the euro and investors slightly scaled back their bets on BoE rate cuts in 2024.

Wages excluding bonuses grew by 6.2% in the last three months of 2023 compared with the same period a year earlier, the Office for National Statistics said.

That was down from 6.7% in the three months to November and represented the slowest increase since the three months to October 2022, but exceeded a median forecast of 6.0% in a Reuters poll of analysts.

Britain's economy may have fallen into a shallow recession in the second half of 2023, something official data is expected to confirm on Thursday, but the labour market remains tight as businesses struggle to find and retain staff. High levels of long-term sickness are also hampering employers.

Including bonuses, which can be volatile, pay growth slowed to 5.8% from 6.7% in the three months to November, the smallest increase since the three months to July 2022 but above the Reuters poll forecast of 5.6%.

Jake Finney, an economist at PwC UK, said the latest fall in vacancies showed that the heat was coming out of the labour market and pay growth was continuing to slow.

Vacancies fell for the 19th time in a row in the three months to January, dropping by 26,000 from the August-to-October period but were only 2,000 lower than in the three months to December.

“The lingering concern for the Bank of England will be that the labour market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target," Finney said.


Regular pay in the private sector rose by an annual 6.2% in the fourth quarter, stronger than the BoE's forecast of 6.0% that it published earlier this month.

The BoE is worried that pay might continue to rise too quickly for inflation to fall to its 2% target.

Data due on Wednesday is expected to show inflation edged up to 4.2% in January. It is forecast to sink back to 2% in the second quarter before picking up again later this year.

Elizabeth Martins, an economist with HSBC, said the conflicting signals from the labour market helped to explain the three-way split on the BoE's Monetary Policy Committee this month with two members voting to raise rates, one to cut and six to keep them on hold.

"Our own view is that the UK economy is in no urgent need of monetary support, and these data back that up," she said, predicting a first rate cut in August.

At 1030 GMT, investors were putting a 62% chance on a first BoE rate hike in June, down from 75% on Monday, and were fully pricing in a cut by August.

Tuesday's data showed the jobless rate fell to 3.8% between October and December and employment rose by 72,000 people.

The ONS has reweighted those data sets to account for changes in population estimates, but a full overhaul of its Labour Force Survey will only take place in September.

There have been other signs that Britain's jobs market is gradually coming off the boil.

Employers plan the first drop in nearly four years in the pace of pay rises over the coming 12 months, a survey showed on Monday, echoing a similar set of data last week.

Workers saw the biggest increase in their regular earnings adjusted for consumer price inflation since the three months to September 2021, with a rise of 1.9% on an annual basis.

However, British households are on course to suffer a first decline in living standards over the course of a parliament since World War Two, a tough backdrop for Prime Minister Rishi Sunak who is expected to call a national election in late 2024.

(Reporting by William Schomberg and Suban Abdulla; editing by Kate Holton, Andrew Heavens and Bernadette Baum)