UK wages surge as unemployment remains steady but Bank of England faces rates decision

The UK's unemployment rate remained steady at 4.3% over the last three months, according to data from the Office for National Statistics. The number of people claiming jobless benefits rose by 300 in November, a smaller increase than analysts had predicted, after a 10,900 decrease in October.

In contrast, wage growth accelerated over the quarter to October, with average earnings excluding bonuses increasing by 5.2%, surpassing market expectations of 5%. Average earnings including bonuses also jumped 5.2%, beating estimates of 4.6%, as reported by City AM.

Analysts attributed the increase in wage growth partly to the above-inflation public sector pay deals announced last summer. However, private sector earnings growth outpaced that of the public sector, at 5.4% versus 4.3% respectively.

Commenting on the data, MHA's economic adviser, Joe Nellis, stated: "The unemployment rate holding steady at a relatively low 4.3 per cent is not a significant cause for celebration, as the long-standing problems in the UK’s labour market continue to undermine attempts to reignite a flatlining and underperforming economy."

The government will need to foster conditions for economic growth by encouraging and assisting individuals to rejoin the workforce, thereby expanding the country's productive capacity. The Bank of England is poised to determine the trajectory for interest rates at the year's final Monetary Policy Committee meeting on Thursday.

Despite a surge in inflation, with recent figures indicating a 2.3 per cent rise in prices in October, surpassing the bank's two per cent target, the Bank is widely anticipated to maintain the current interest rates. "Policymakers will clearly be seeking a significant cooling in earnings pressures before being convinced that the risk of persistent price pressures is receding, and that sticky services inflation may begin to ease," stated Michael Brown, senior research strategist at Pepperstone.

Quilter Investors' investment strategist Lindsay James added: "The Bank of England will be carefully analysing this data ahead of its rate decision later this week."

Interest rates remain at 4.75%, with sustained wage inflation exceeding historical norms, likely keeping the Bank vigilant. There are signs of a cooling labour market, but changes are gradual, with payrolled employee numbers showing little change in 2024 and wage growth continuing to rise.