LONDON – Britain’s unemployment rate hit a 48-year low in the first three months of 2022 and employers offered large bonuses to keep or attract workers, according to data which added to bets by investors on further Bank of England interest rate hikes.
While adjusting for rising inflation, the core income of most workers fell the most since 2013, the Office for National Statistics reported on Tuesday.
But total wages, including bonuses, rose 7.0% from a year earlier, much higher than economists’ average forecast of 5.4%.
Sterling rose 1.1% against the US dollar and 0.6% against the euro. Investors have set a 30% chance that the BoE’s monetary policy committee will raise interest rates by half a percentage point in June.
Unemployment fell to 3.8% from 3.8% – below the forecast for a Reuters poll to stay stable – and the number of people out of work was lower than the number of job vacancies offered for the first time on record.
“We were amazed at the strength of today’s labor market emancipation, especially given the risk of a recession in the economy,” said Philip Shaw, an economist at Invetech. “In fact, it will do nothing to allay MPC’s concerns over inflationary pressures.”
The BoE fears higher-than-normal pay rises could be a key channel for a current energy-driven jump in inflation.
Consumer price inflation was 7.0% in March and official figures on Wednesday are expected to hit 9.1% in April when energy tariff increases of 54% took effect.
The BoE expects further price increases to push the economy closer to recession by the end of 2022, with rising unemployment.
However, some economists said Tuesday’s data showed that the central bank had underestimated the heat of the labor market, at least for the time being.
“While the BoE’s message was unpleasant at the last meeting, the data continues to speak louder than MPC rhetoric and we are confident that it will rise 25 basis points again in June,” said Alan Monks, an economist at JPMorgan.
Strong salary increase, but only for some
Although wages rose in some sectors in Tuesday’s data – total wages rose 9.9% in March alone – rewards from a tight labor market were unevenly distributed.
Bankers and builders are doing particularly well, while public sector workers face the biggest pay pressures.
Regular wages rose slightly more than expected, rising 4.2%.
Adjusted for inflation, basic pay was 2.0% lower than a year earlier, the biggest fall in three months since September 2013.
Gov. Andrew Bailey said the decline in living standards due to the impact of energy prices is inevitable, and a massive push for higher wages would disproportionately benefit workers who were already in a strong position in the job market.
The BoE should take a break to think about raising interest rates of unequal nature of wage gains, which financial markets expect to reach 2.0-2.25% by the end of the year, says Samuel Tombs of Pantheon Macroeconomics.
“These numbers should not frighten the MPC into raising wages,” he said.
Despite the economic stagnation in February and March, the strength of the labor market came.
The number of people in the workplace rose to 83,000 in the first quarter of the year, but before the Covid-19 epidemic it was below 444,000, largely reflecting long-term illness and early retirement.
However, Tuesday’s data showed that since the record began in 2001, the highest number of people working from ‘inactivity’ has come up with temporary signs that it could begin to reverse.