Wages grew at their fastest pace in nearly two years as workers benefited from new wage deals and higher minimum wages nationally.
Official figures from the Office for National Statistics showed average weekly earnings, excluding bonuses, rose from 6.7 percent to 7.2 percent in the three months to April, ahead of economists’ expectations for a jump to 6.9 percent.
The ONS said this was the fastest acceleration in normal wages since June 2021 and the highest on record outside the pandemic.
Stronger wage growth was widely expected on the back of the introduction of higher national minimum wages and living wages in April. Many private sector employees also set new annual bonuses that began during the three-month period that coincides with the start of the tax year.
The ONS said weekly salaries including bonuses jumped from 5.8 percent to 6.5 percent, also above economists’ expectations.
The numbers will add pressure to rate-setters at the Bank of England who are looking for signs of the strength of inflationary pressures across the economy. Strong wage growth often translates to higher inflation as employees are partially compensated for higher prices and can maintain their spending habits.
Real wage growth, which excludes inflation, remained negative due to double-digit inflation recorded in February and March.
The labor market showed some signs of cooling as the unemployment rate rose 0.1 percentage point to 3.8 percent in the three months through April, below economists’ expectations of 4 percent. The Office for National Statistics said the rise in unemployment was driven by people who had been out of work for more than a year.
The UK labor market has been hot in the past year, defying pressure from rapidly rising interest rates as companies continued to hire and retain workers.
The number of job vacancies in the economy, which has been steadily declining after hitting a record high last summer, fell by 79,000 to 1.05 million. Total associated employees rose in May, rising by 23,000, after an unexpected drop of 135,000 in April, bringing the total number of jobs to 30 million.
The labor market report for April comes ahead of the Bank’s next interest rate decision on June 22, when the Monetary Policy Committee is expected to raise borrowing costs by another quarter of a percentage point, to 4.75 percent. Inflation failed to fall in line with MPC forecasts and reached 8.7 percent in April.
Yael Selvin, chief economist at KPMG, said: “Continued strength in wage growth will ensure higher interest rates. The recovery in orderly wage growth is the latest sign that inflation is driving up wage demands, which in turn leads to more persistent inflation.”
A closely watched measure of labor force inactivity, which calculates the share of the population not looking for work, fell 0.4 percentage point to 21 percent. The Office for National Statistics said the number of people reporting a long-term illness as a reason for not working reached a record high between February and April.
The UK has suffered the worst post-pandemic drop in workforce participation, a factor that has drastically reduced the supply of workers and helped existing staff negotiate better salary deals.
Catherine Mann, an outside member on the bank’s Monetary Policy Committee, warned this week that early retirees risk inflaming generational tensions as younger workers will have to shoulder the burden of their retirement through higher taxes to fund public services.