LONDON, March 20, 2025 (Bloomberg) — The UK’s wage growth continued its upward trajectory, reaching its highest level in nine months, as employment figures showed resilience in the labor market. This data, released just hours before the Bank of England’s (BOE) interest rate decision, is expected to influence the central bank’s stance on further rate cuts, suggesting caution in any swift reduction of rates.
In the three months leading up to January, average pay excluding bonuses rose by 5.9%, in line with economists’ forecasts. Private-sector pay growth, a key indicator closely monitored by the BOE, eased slightly to 6.1%, down from 6.2% in the previous period.
Contrary to some concerns, job losses have not materialized in significant numbers, even after the government introduced a series of cost-cutting measures, including a £26 billion ($33.7 billion) hike in payroll taxes and an increase in the minimum wage. According to tax data, the number of employees on payrolls rose by 21,000 in February, defying expectations of a decline of similar magnitude. This follows a stable employment rate since October, when the government announced the tax hikes.
These employment and wage figures are crucial ahead of the BOE’s policy decision later today. The data is likely to solidify the central bank’s cautious approach to lowering interest rates too quickly, as it continues to navigate a complex economic landscape. The Monetary Policy Committee (MPC) received an early preview of the data before their meeting, and some rate-setters have expressed concerns about the rapid pace of pay growth, with surveys indicating that businesses may continue pushing for higher wages into 2025.
Additionally, job vacancies rose by 1,000 compared to the previous three-month period, marking the first increase since the second quarter of 2022. Meanwhile, unemployment held steady at 4.4%. Despite surveys suggesting that businesses might cut headcount following the tax increases, official data has shown no significant spike in redundancies.
Ruth Gregory, Deputy Chief UK Economist at Capital Economics, commented, “The latest figures show that the jobs market is not collapsing as some surveys suggest. With wage growth still persistent, this will increase the Bank’s concerns about inflation resurgence, keeping it on its ‘gradual and careful’ path for interest rate cuts.”
The British pound extended its losses slightly after the data was released, slipping as much as 0.2% to $1.2983. Traders are expecting the BOE to maintain its current rates when the central bank announces its decision later this afternoon.
While surveys have indicated that businesses are reducing headcount and limiting hiring due to the fiscal policies introduced by the Labour government, the official data has yet to show a significant rise in redundancies. The fate of the jobs market will be a critical factor in the BOE’s decision-making, as it balances the impact of higher costs on corporate profits against the risk of increasing unemployment, weaker wage growth, and rising prices.
The government’s announcement this week of welfare reforms aimed at reducing the number of people out of the labor market due to long-term sickness may also play a role in the BOE’s calculations, as officials continue to monitor the evolving employment landscape.
The outlook for the UK labor market remains a pivotal factor in the central bank’s decision on whether to continue its cautious approach to interest rate cuts in the months ahead.
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