© Reuters. FILE PHOTO: People walk over London Bridge looking at a view of Tower Bridge in the City of London financial district in London, Britain, October 25, 2023. REUTERS/ Susannah Ireland/File Photo
By William Schomberg and Suban Abdulla
LONDON (Reuters) -British pay grew at the slowest pace in more than a year at the end of 2023, according to official data published on Tuesday, but the slowdown was less strong than most analysts had forecast and Britain’s jobless rate unexpectedly fell.
The data suggested that the country’s labour market was probably still generating too much inflationary pressure for the Bank of England to move quickly towards cutting interest rates, analysts said.
Sterling strengthened against the U.S. dollar and the euro immediately after the labour market data was published and investors scaled back their bets on BoE rate cuts in 2024.
Wages excluding bonuses grew by 6.2% in the last three months of 2023 compared with the same period a year earlier, down from 6.7% in the three months to November and the slowest increase since the three months to October 2022.
Including bonuses, which can be volatile, pay growth slowed to 5.8% from 6.7% in the three months to November, the smallest increase since the three months to July 2022 but above the Reuters poll forecast of 5.6%.
Jake Finney, an economist at PwC UK, said the latest fall in vacancies reported by the Office for National Statistics showed the heat was coming out of the labour market and pay growth was continuing to slow.
“However, the lingering concern for the Bank of England will be that the labour market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target,” Finney said.
“This remains one of the key barriers to the base rate cut in May that markets are currently expecting.”
The BoE is watching pay growth closely as it tries to gauge how much inflation pressure remains in the economy and whether it can start to consider cutting interest rates from their highest level since 2008.
“With today’s print pointing to some signs of slowing in a still strong labour market, significantly more evidence of cooling is likely required before the Bank is ready to consider cutting rates,” Hugh Gimber, global market strategist at J.P. Morgan Asset Management, said.
Tuesday’s data showed the jobless rate fell to 3.8% between October and December and employment rose by 72,000 people.
The ONS has reweighted those datasets to account for changes in population estimates but a full overhaul of its Labour Force Survey will only take place in September.