U.K. wage growth provides headache for Bank of England

Published 15/04/2025, 07:34
Updated 15/04/2025, 07:36
© Reuters

Investing.com - The U.K. unemployment rate remained unchanged in February, as widely expected, data showed Tuesday, but wages growth continued to be an issue for the Bank of England as it attempts to guide the U.K. economy through difficult waters.

According to the Office for National Statistics, the jobless rate remained at 4.4% in the three months to February, unchanged from the prior release, as had been expected. 

However, pay growth across the whole economy, excluding bonuses, rose to an annual 5.9% rate in the three months to February, above the revised 5.8% seen in January.

The BoE policymakers have been studying wage growth figures closely, as they attempt to judge whether inflation pressures in the labor market are easing sufficiently for it to continue cutting interest rates. 

Britain’s consumer price index rose by 2.8% in the 12 months to February, the latest month for which data is available. This represented a drop from 3.0% in January, but is still considerably above the central bank’s 2% medium-term target.

The Bank of England’s Monetary Policy Committee kept borrowing costs on hold at its last meeting in March, but is widely expected to authorise a quarter-point rate cut at its May gathering given the potential economic implications of the Trump administration’s new tariffs regime.

"Overall, tariffs are likely to lower U.K. growth," Bank of England Deputy Governor Sarah Breeden said at an event last week.

"Expenditure switching by U.S. consumers away from U.K. goods, combined with weaker global demand due to potential counter tariffs and supply chain disruptions would be expected to weigh on U.K. activity," she said.

However, she added, "I think it;s too early to call the overall impact on inflation for the U.K. and hence the appropriate monetary policy response at this stage."

 

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