UK Wage Growth Surprises as Bank of England Weighs Rate Hold

The Office for National Statistics reported that pay growth excluding bonuses held firm at 3.4%, surpassing the 3.2% forecast by economists. While the jobless rate unexpectedly fell, the shift was driven by fewer people actively seeking work rather than a surge in hiring. Most analysts anticipate the Monetary Policy Committee will maintain interest rates at 3.75%, though these figures may embolden members pushing for a more hawkish stance to combat sticky inflation.

Beneath the headline numbers, the labor market shows clear signs of fragility. Private-sector wage growth excluding bonuses slowed to 2.9%, the smallest increase since late 2020. Simultaneously, job vacancies have tumbled to 707,000—a sharp decline from the 1.3 million peak recorded in 2022. With the Confederation of British Industry projecting unemployment could reach 5.5% this year, employers remain cautious. The central bank continues to signal that wage growth above 3% is incompatible with its 2% inflation target, particularly given the UK’s persistent weakness in productivity.