The UK labor market continued to recover in the three months to January despite rising headwinds, data from the Office for National Statistics revealed on Tuesday.
The ILO jobless rate dropped 0.2 percentage points on the quarter to 3.9 percent, the lowest since early 2020. This was also below the expected rate of 4.0 percent.
At the same time, the employment rate increased 0.1 percentage points to 75.6 percent in the three months to January.
In the three months to January, average earnings including bonuses grew 4.8 percent from the previous year versus the forecast of 4.6 percent.
Excluding bonuses, growth in average earnings was 3.8 percent, also faster than the expected 3.7 percent. However, regular pay fell 1.0 percent in real terms in the three months to January.
Although there was a moderate pick-up in regular pay growth, wages are still comfortably trailing behind inflation, which is putting the brakes on consumer spending by eroding their spending power and confidence, Suren?Thiru, BCC Head of Economics, said.
Data showed that the number of job vacancies in December to February rose to a new record of 1,318,000.
In February, payrolled employees showed another monthly increase of 275,000 to a record 29.7 million.
Further, jobless claims declined sharply by 48,100 in February from the last month. The claimant count fell to seasonally adjusted 4.4 percent from 4.5 percent in January.
The further fall in the unemployment rate to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates on Thursday, probably from 0.50 percent to 0.75 percent, despite the coming extra hit to households’ real incomes from the war in Ukraine, Paul Dales, an economist at Capital Economics, said.
A low unemployment rate and high wage growth will prompt the Bank to raise rates to 2.00 percent next year, Dales added.