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UK pay grows 5.9% despite slowing jobs market

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UK wage growth remained strong in the three months to April as a rise in the minimum wage boosted pay packets despite a slowing jobs market, official data showed on Tuesday.

The Office for National Statistics said annual growth in average weekly wages, including bonuses, remained steady at 5.9 per cent, unchanged from an upwardly revised figure of 5.9 per cent for the three months to March.

Excluding bonuses, annual growth of 6 per cent in average wages was also unchanged from the three months to March, in line with analysts’ expectations.

But the ONS said there were also signs of the labour market cooling, with a slight decline in the number of vacancies and payrolled employees and an uptick in claims for jobless benefits.

The number of job vacancies has fallen by a third since its peak in the spring of 2022, to 904,000, but remains higher than before the Covid-19 pandemic.

The ONS’s headline measures of unemployment and employment remain less reliable than usual due to problems with the labour force survey that underpins them.

On the LFS measure, unemployment rose to 4.4 per cent in the three months to April, up from 4.3 per cent in the three months to March, with the employment rate falling to 74.3 per cent — lower than a year ago.

Based on these figures, the UK’s workforce has suffered an ongoing contraction and is smaller now than it was on the eve of the pandemic.

Tony Wilson, director of the Institute for Employment Studies think-tank, said the data showed the number of people in work had fallen “for the first time since [Margaret] Thatcher’s first term”, with a drop of 40,000 since Boris Johnson’s 2019 victory, in contrast to job gains of almost 4mn over the previous decade.

Other measures of employment paint a different picture. HM Revenue & Customs tax records show the number of people on employers’ payrolls has risen steadily from just over 29mn at the start of 2020 to 30.3mn in May, with only a slight dip in recent months.

A separate ONS measure of workforce jobs, based on a different survey of employers, showed the number of employee and self-employed jobs had increased by 431,000 over the year to March to 37.2mn.

Investors increased their bets on more than one Bank of England rate cut this year after the figures were released, while interest rate-sensitive two-year gilt yields dropped 0.03 percentage points to 4.38 per cent.

Traders moved to fully price the first BoE quarter-point rate cut by November, with a 50 per cent chance of a second cut by the end of the year, up from 40 per cent ahead of the labour market data.

Markets now place a 40 per cent chance of the first rate cut being delivered by August, up from a probability of a third on Tuesday morning. The BoE rate is currently at a 16-year high of 5.25 per cent.

Ruth Gregory at the consultancy Capital Economics said the “stickiness” of wage growth would be a “lingering concern” for the BoE, but it was partly due to April’s 9.8 per cent rise in the statutory minimum wage and would not necessarily prevent the bank from cutting interest rates in August.

The MPC has pointed to evidence that companies are increasingly unable to pass higher wage costs on to consumers, so strong wage growth may not boost inflation as much as it did last year.

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