UK job market cools slightly, but high wages, inactivity remain challenges for Bank of England

UK economy: The latest UK labour market data showed a slight cooling in wage growth, a potential positive sign for the BoE in its fight against inflation. Regular wages excluding bonuses, a key metric for the BoE, grew by 6.0 per cent compared to the same period last year, down slightly from the previous reading of 6.1 per cent. However, this growth remains high by historical standards.

The unemployment rate rose more than expected to 4.2 per cent from 3.9 per cent, potentially indicating a weakening jobs market. However, the Office for National Statistics (ONS) cautioned that the data is still volatile due to ongoing methodological adjustments.

Economists see some positive signs for inflation. Yael Selfin, chief economist at KPMG UK, believes the rise in unemployment and the slowing wage growth suggest a potential decrease in inflationary pressures. Investors also reacted positively, with bets on BoE rate cuts being trimmed and a first reduction now fully priced in for September.

Despite the slight slowdown, strong wage growth remains a concern. The data showed regular pay adjusted for inflation rose by 2.1 per cent in the three months to February, the highest annual increase since mid-2021. This could put pressure on household finances and businesses, with some employers already reporting difficulties due to rising labour costs.

Another concerning trend is the increasing rate of inactivity in the labour market. This metric, which measures people who are neither employed nor actively seeking work, rose to 22.2 per cent, the highest level since mid-2015. The number of people registered as long-term sick also hit a record high.

Analysts see a mixed picture in the UK labour market. Matthew Percival of the Confederation of British Industry (CBI) highlights the rising unemployment and inactivity alongside unfilled vacancies, suggesting a two-speed market. Jack Kennedy of Indeed believes the continued high wage growth could delay potential BoE rate cuts.

The recent increase in the minimum wage by almost 10 per cent to £11.44 ($14.23) per hour for workers aged 21 and over might further contribute to inflationary pressures and business challenges. Additionally, the Recruitment and Employment Confederation reported a fifth consecutive month of decreasing demand for staff in March.

(With Reuters inputs.)