Unemployment ticks higher as wage growth slows

(Sharecast News) - UK unemployment ticked higher in the first quarter, official data showed on Tuesday, while wage growth slowed.

According to the Office for National Statistics, the UK unemployment rate was estimated to be 5.0% in January to March, up 0.5 percentage points year-on-year but down 0.1 percentage points on the previous three months.

The rate was marginally above consensus expectations of 4.9%.

Annual growth in employees' average regular earnings excluding bonuses fell to 3.4% from 3.6% a month previously, in line with expectations. Once bonuses were included, however, earnings grew by 4.1%, up on last month's 3.9% and ahead of forecasts for a drop to 3.8%.

Earnings in the public sector grew by 4.8%, and by 3.0% in the private sector.

Liz McKeown, director of economic statistics at the ONS, said: "Latest figures suggest the labour market remains soft, with vacancies at their lowest level in five years and unemployment higher than a year ago.

"Lower-paying sectors such as hospitality and retail have seen some of the largest falls in vacancies and payroll numbers, both in recent months and over the last year."

However, she acknowledged that while early estimates of the number of people on the payroll in April pointed to "further weakness", the start of the new tax year meant the figures "carry greater uncertainty" and were often subject to larger-than-average upward revisions.

The data is the first to cover war in Middle East. The conflict, which began at the end of February, has sent global energy prices soaring, reigniting inflation fears and weighing on interest rate expectations. Business and consumer sentiment has also weakened as hostilities drag on. The US and Iran have agreed a fragile ceasefire, but a long-term permanent peace plan remains elusive.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "The data puts a softer labour market back at the centre of the rates debate, and may help to take some heat out of the recent rise in gilt yields.

"The important point for markets is that businesses appear to be responding to higher costs by cutting headcount, not by pushing wages materially higher to compensate workers. That should help keep the coming inflation spike contained to a short-term energy shock rather than the start of a wage-price spiral, giving the Bank of England a little more room to sit tight rather than rush into further rate hikes."

James Smith, developed markets economist, UK, at ING, said: "The latest UK jobs report is a reminder that the economy is much less susceptible to second round effects from the incoming energy shock. We are still forecasting a rate hike in June, but that is far from guaranteed.

"A lot will depend on Wednesday's inflation data."