Press release

18 Apr 2023 London, GB

Wages data is inconclusive, while jobs market remains resilient – EY ITEM Club comments

The latest labour market data remained resilient and private sector pay growth picked up again on a single month basis, sending a hawkish signal to the Monetary Policy Committee (MPC) and emphasising that May's meeting could go either way. Tomorrow's inflation numbers will provide more guidance.

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James White

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  • The latest labour market data remained resilient and private sector pay growth picked up again on a single month basis, sending a hawkish signal to the Monetary Policy Committee (MPC) and emphasising that May's meeting could go either way. Tomorrow's inflation numbers will provide more guidance.
  • Although the jobless rate ticked up slightly and vacancy numbers fell in the latest data, an improved outlook for GDP and the odds that some businesses, facing recruitment difficulties, will choose to keep workers on should keep the UK’s unemployment rate low.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The story of the labour market in the last few months – resilience in the face of a stagnant economy but loosening at the edges – continued in the latest numbers. Employment and inactivity saw a decent rise and fall respectively in the three months to February. These moves took both closer to pre-pandemic rates and left the official Labour Force Survey (LFS) unemployment rate at 3.8%, up 0.1ppt on the previous three-month period.

“Meanwhile, the downward trend in vacancies continued. However, the 1.1mn job openings in Q1 2023 was still a third higher than the pre-pandemic level, while the number of vacancies per unemployed person remained not far off one-for-one. Improved prospects for GDP growth and the likelihood that some employers will look to keep workers in the face of recruitment difficulties mean the EY ITEM Club thinks any further waning in UK labour demand will be modest.  

“On the earnings front, the data sent mixed signals. Headline (three-month average of the annual rate) private sector pay growth, a measure which the MPC cites as an indicator of domestic inflationary pressure, slowed to 6.9% year-on-year in February, a five-month low. However, this largely reflected weakness in prior months, and the single-month outturn for February was strong, pushing the year-on-year rate up to a three-month high of 7.3%.

“The EY ITEM Club thinks pay growth should cool as inflation and inflation expectations fall back and a degree of slack opens up in the labour market. But given the MPC's wariness around inflation persistence, February's strong rise in private sector regular pay could easily shift the majority in a more hawkish direction. May's interest rate decision could go either way and March's inflation data, released on 19 April, will provide an additional, and important, steer.”