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BoE poised for February rate hike even as UK wages lag inflation

Tue, 18th Jan 2022 10:27

(Alliance News) - The latest UK jobs data paints a "complex" picture of the labour market, analysts said on Tuesday, with unemployment near pre-virus levels but wages failing to keep up with inflation.

The UK unemployment rate unexpectedly edged down to 4.1% in the three months to November, having been forecast by analysts to remain steady at 4.2% for the three months to October.

The jobless rate remains 0.1 percentage point above pre-virus levels, but was 0.4 percentage point below the previous three-month period, which ran to August.

The figures are a cause for optimism ahead of a likely hit from the Omicron variant at the end of the year, said Joanne Frew, head of employment law at London-listed legal firm DWF.

"Undoubtedly the labour market figures will see the impact of the Omicron variant and tighter restrictions, including the 'Plan B' restrictions in England, hitting over the Christmas and New Year period, in particular in industries such as hospitality and tourism. However, with the continued drive on booster vaccinations and the latest trend in cases showing a reduction in daily figures, we anticipate with hopeful optimism that the labour market will remain robust," said Frew.

Early indications for December are good. The ONS said there were 29.5 million payrolled employees in the UK in December, up 184,000 on November and over 400,000 above pre-virus levels.

The number of job vacancies in October to December 2021 rose to a new record of 1.2 million, an increase of 462,000 from its pre-coronavirus January to March 2020 level.

But Tuesday's positive headline news masks a more "intriguing picture", said AJ Bell financial analyst Danni Hewson. "The real story this month can be found in wage growth. For the first time since July 2020 wages actually fell in November if you take into account blistering inflation figures."

Annual growth in total pay - or including bonuses - was 4.2% for the three months to November, and regular pay, which strips out bonuses, rose 3.8%. Both were below the annual UK inflation rate for November, which was 5.1%, and the 4.2% growth in total pay for November was the slowest since November 2020, when it was 3.7%.

As the labour market appears to have tightened since the end of the furlough scheme in September, Capital Economics expects the Bank of England will hike interest rates in February despite real wages falling.

With data on Wednesday set to show UK inflation accelerated further to 5.2% in December on an annual basis, wages may continue to struggle to keep up over the coming months.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.

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