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UK wage growth remained robust in the three months to January despite sluggish hiring, according to official data that experts believe will support the case for the Bank of England to maintain interest rates at their current level.
Annual growth in average weekly earnings, excluding bonuses, stayed at 5.9 per cent in the three months to January, as reported by the Office for National Statistics on Thursday. This figure was in line with what economists had predicted.
When bonuses were included, wage growth slightly decreased to 5.8 per cent during the same period, down from 6.1 per cent in the three months leading up to December.
A different report based on tax records indicated that payroll employment remained stable, with a minor increase of 9,000 employees between December and January. Companies expressed concerns about slow economic growth, potential trade conflicts, and forthcoming tax and minimum wage hikes.
While employment only grew by 0.1 per cent in the year leading up to January, provisional figures for February showed a slight uptick of 21,000 employees, or 0.1 per cent for the month. Historically, initial estimates for the latest month have often been revised upwards.
The juxtaposition of strong wage growth and tepid hiring poses a challenge for the Bank of England’s monetary policy committee, which is expected to maintain interest rates at 4.5 per cent following its announcement later in the day.
Ruth Gregory of consultancy Capital Economics remarked, “With the labor market cooling rather than collapsing and wage growth remaining in the 5.5-6.0% range, we do not anticipate the Bank of England to reduce interest rates from 4.50% today.” However, she acknowledged the delicate position the Bank finds itself in.
The MPC is concerned about the potential deterioration of the job market, while also growing more pessimistic about the UK economy’s ability to expand without triggering inflation. Inflation was at 3 per cent in January and is expected to rise further by mid-year.
BoE governor Andrew Bailey cautioned last month that Budget tax hikes could lead to both price increases and greater job losses than initially anticipated, particularly in sectors where employers cannot decrease pay for workers already earning minimum wage.