The U.K. labor market continues to display resilience as wage growth eases slightly and unemployment unexpectedly decreases. The Bank of England faces the challenge of navigating a tight labor market while considering when to implement interest rate cuts amid lingering inflationary pressures.
According to data released by the Office for National Statistics on Tuesday, average pay growth, excluding bonuses, stood at 6.2% in the three months leading up to December, a decrease from the previous three-month period’s 6.7% growth. Conversely, the unemployment rate for October to December was 3.8%, lower than the 3.9% recorded in the three months prior.
The Bank of England had predicted a wage growth rate of 6.1% and an unemployment rate of 4.0%, highlighting the variance from economists’ consensus expressed in a survey conducted by The Wall Street Journal.
The relatively slower decline in wage growth than anticipated and the lower unemployment rate may delay expectations for immediate interest rate cuts by the Bank of England. Nonetheless, it is worth noting that wage growth continues to moderate.
Ashley Webb, a U.K. economist at Capital Economics, suggests that the Bank of England’s decision regarding interest rates will depend largely on wider price pressures—a sentiment that will be reinforced or challenged by forthcoming inflation data to be published on Wednesday.
However, the latest labor market figures from the Office for National Statistics contradict some broader surveys, prompting concerns among policymakers. Consequently, the ONS has initiated efforts to revamp its data collection methods, likely seeking more accurate insights moving forward.
Reintroduction of Headline Measure for Unemployment by ONS
The Office for National Statistics (ONS) has recently reintroduced its headline measure for unemployment called the Labor Force Survey. This survey now incorporates the latest population information. Face-to-face interviews, which were temporarily suspended during the pandemic, have now resumed in an effort to improve response rates. It is important to note that the data collected from these interviews will only be reflected in future reports.
Revised statistics released last week have shown that the labor market in the U.K. is tighter than previously believed. Initial data indicated an unemployment rate of 3.9% for the three months leading up to November. However, the revised figures reveal that the actual rate of joblessness during this period was 4.2%.
Sanjay Raja, the chief U.K. economist at Deutsche Bank Research, expressed skepticism regarding the data. He believes that due to significant revisions to previous data, it is crucial to approach these figures with caution.
Furthermore, Raja pointed out that the decrease in the unemployment rate during the three-month period contradicts other survey data and hard statistics such as claimant-count data and payroll data.
In January, the number of jobless claimants increased by more than 14,000, and vacancies declined by 2.7% or 26,000 from November to January, marking the 19th consecutive period of decline. These figures further question the accuracy of the official data on the tightness of the labor market.
Samuel Tombs, an economist at Pantheon Economics, noted that while official data suggests a tight labor market, its reliability remains questionable. He particularly cast doubt on the recent dip in the unemployment rate from its post-COVID peak of 4.3% in July.
Liz McKeown, the ONS’s director of economic statistics, acknowledged that despite the low jobless rate, employment growth has slowed over the past year. This is partially attributed to an increase in inactivity, as a significant number of individuals claim to be long-term sick.