UK Wage Growth Rises Above Forecasts As Unemployment Levels Increase

UK Wage Growth Rises Above Forecasts

This morning has seen UK wage growth unexpectedly rise as markets weigh on the heat of the labour market in the run up to the UK’s inflation print tomorrow and the BoE’s rate hike on 11th May. Average weekly earnings, including bonuses in the UK, rose to 5.9% on an annualised basis – well above expectations of 5.1%. Meanwhile, average earnings excluding bonuses rose to 6.6%, surpassing forecasts of 6.2%. This morning’s wage data has also again highlighted the gulf between the private and public sector with average regular pay being 6.9% for the former and 5.3% for the latter. This comes as the finance and business services sector’s regular growth rate came in at 8.3% as the construction sector’s also rose at 6.2%.

While these figures continue to signal that there is substantial heat in the UK labour market, total pay fell 3% when adjusted for inflation as the stretch on households continue to exacerbate the cost-of-living crisis.

UK Unemployment Rises Unexpectedly to 3.8%

This morning saw UK unemployment unexpectedly rise by 0.1 percentage points to 3.8%. This marks the highest level of unemployment since Q2 2022 with a further 49,000 people out of work. This marks the first rise in unemployment from 3.7% since October and suggests that the heat of the UK labour market may be beginning to ease – though wage growth would suggest otherwise. Recently, the heat of the UK labour market has been evident with unemployment levels close to record lows while job vacancies have remained close to record highs. Moreover, a recent study earlier this year suggested a worker shortfall of 330,000 people due to Brexit related restrictions, thus exacerbating shortfalls in the UK labour market which will continue to weigh on investor’s medium to long-term view of the UK economy.

Modest Rise in Equities as Investors Await Corporate Earnings

As investors await a string of corporate earnings data from the US and digest banking sector earnings, yesterday saw a modest rally in US equities. Here, the S&P 500 gained 0.33%, while the Dow Jones climbed 0.3%. Meanwhile the teach heavy Nasdaq rose just over a quarter-of-a-percent at 0.28%. This came as shares in Alphabet shed 2.7% following reports that South Korea's Samsung Electronics is considering replacing Google with Bing (owned by Microsoft) as the default search engine on its devices. Meanwhile the STOXX 600 ended more or less flat as the index holds around one-year highs.

All Eyes on Tomorrow’s UK Inflation Print

Tomorrow, all eyes will be looking towards UK CPI which is expected to slip 0.4 percentage points to 10%. Last month, the UK’s inflation print indicated that headline CPI unexpectedly rose from 10.1% in January to 10.4% in February against market forecasts that UK inflation would fall from double digits for the first time since August. The 0.3 percentage point increase from January bucked the trend of a falling rate of inflation seen each month since November and reiterated the challenge that the BoE faces in bringing inflation back to their 2% target rate. As we await the UK’s CPI Print, in the run up to Threadneedle Street’s decision on 11th May, according to a Bloomberg news survey more than half of economists now think the BoE will not from raise its key rate again.