By Andy Bruce and David Milliken
LONDON (Reuters) – British pay growth stayed stubbornly strong in the three months to November but there were more signs of a softening jobs market, according to data on Tuesday that reinforced the current outlook for Bank of England interest rates.
Growth in private-sector pay excluding bonuses – a measure watched closely by the BoE as a gauge of domestic inflation pressure – rose to 6.0% in the three months to November from 5.5% in the three months to October.
It was the strongest reading since February 2024 and suggested that the central bank’s forecast of 5.1% for the fourth quarter as a whole will be overshot by a wide margin.
Sterling and market expectations for a Bank of England interest rate cut on Feb. 6 were largely unmoved by the data.
Economists and investors expect the BoE to cut its main interest rate by 0.25 percentage points to 4.5% on Feb. 6, and economists polled by Reuters expect three further cuts this year, while markets expect one or two more after February.
While pay growth pointed to persistent inflationary pressure, other measures of the health of the labour market have pointed in the opposite direction.
Several business surveys have shown a sharp fall in the outlook for employment since finance minister Rachel Reeves announced big tax increases on employers in her Oct. 30 budget.
Tuesday’s data showed the jobless rate rose slightly to 4.4% in the three months to November, its highest since the three months to May, as expected in a Reuters poll of economists.
However, the survey used for calculating the unemployment rate is in the process of being overhauled after response rates fell too low to be a reliable gauge of the jobs market.
Separate data provided by employers to the tax authorities showed the number of employees dropped by 47,000 in December, the sharpest fall since November 2020 and following a 32,000 drop a month earlier.
“The latest figures show a familiar combination of strong wage growth despite further cooling in the labour market, with vacancies falling and an uptick in unemployment. Sticky wage growth remains a key concern for the Bank of England,” said Jack Kennedy, economist at Indeed, an online jobs portal.
Pay growth for the whole economy, excluding bonuses, was 5.6% higher in the three months to the end of November than a year earlier, the strongest reading since the three months to May 2024. A Reuters poll had pointed to regular wage growth of 5.5%.
Britain’s economy stagnated in the third quarter of 2024, when the prospect of big tax rises in the Labour government’s budget hit companies, and the BoE estimates there was zero growth in the final quarter of 2024 too.
(Reporting by Andy Bruce and David Milliken; additional reporting by Sachin Ravikumar; Editing by Ros Russell)
