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UK wage growth slowed on the eve of the Iran war, according to official data that suggests workers will find it difficult to bargain for higher pay to offset the price shock unleashed by the conflict.
Average weekly wages, excluding bonuses, were 3.6 per cent higher in the three months to February than a year earlier, the Office for National Statistics said on Tuesday, down from 3.8 per cent in the three months to January. Analysts had expected wage growth would slow to 3.5 per cent.
After taking inflation into account, wages grew just 0.2 per cent, even before households began to feel the effects of higher fuel prices sparked by the US-Israeli invasion of Iran at the end of February.
The ONS also said vacancies fell in the three months to March, reaching their lowest level since early 2021, suggesting the outbreak of the war hit hiring after a more stable period at the start of the year.
Payroll unemployment, which fell in the run-up to last year’s Budget, was little changed in the three months to February from the previous quarter, and provisional figures for March showed only a small 11,000 fall.
The data drew a muted response from investors, with the pound little changed at $1.352.
Separate figures based on the ONS labour force survey also pointed to a drop in the unemployment rate to 4.9 per cent in the three months to February, down 0.2 percentage points from the previous quarter. However, this was largely owing to people dropping out of the workforce, with the economic inactivity rate rising on the quarter.
The wage figures will offer some relief to policymakers at the Bank of England, who have been battling with above-target inflation for almost five years and now face an even longer overshoot as a result of the Iran-related rise in energy prices.
Andrew Bailey, the central bank’s governor, has indicated that he expects a weak job market to make “second round” effects from surging energy and food prices less likely than in 2021-22, reducing the risk of a wage-price spiral fuelling persistently high inflation.
Yael Selfin, chief economist at KPMG, said: “In contrast to the energy shock of 2022, the labour market is in a weaker state, constraining the bargaining power of workers and lowering the likelihood of a potential wage-price spiral.”
Pat McFadden, secretary for work and pensions, said the figures showed the labour market had been improving at the start of the year but added: “We cannot escape the effects of the war in the Middle East” — although the government would “do everything we can to support the country through this period, including by slashing energy bills by up to 25 per cent for 10,000 manufacturers.”
