- The unemployment rate ticked up a little in Q1, while falls in inactivity and job vacancies also implied a further loosening in the labour market. Meanwhile, headline total pay growth slowed in Q1.
- Private sector regular pay growth in Q1 was in line with the Bank of England's forecast, while unemployment was marginally higher. There was therefore nothing obvious to fulfil the Monetary Policy Committee's (MPC) criteria for raising rates again, and the focus now switches to the next set of inflation data.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “The latest labour market release continued the theme evident since last summer of a tight job market, but one loosening around the edges. Employment rose by a healthy 182,000 in Q1 on the previous three-month period, despite a near-stagnant economy. A growing number of people in work was accompanied by a sizeable fall in inactivity. However, this was heavily dependent on falling student numbers, a notoriously volatile component, while the numbers of long-term sick rose again. These moves left the Labour Force Survey (LFS) unemployment rate at 3.9% in Q1, 0.1ppts higher than the previous quarter.
“Lower inactivity wasn't the only indicator pointing to a loosening in the labour market. Job vacancies continued to decline, falling to the lowest level since last summer. This pushed up the ratio of unemployed to vacancies to the highest in 18 months, albeit to a level still low by historical standards.
“Signs of loosening were accompanied by softer, although still heated, headline pay growth. Total pay rose 5.8% year-on-year in Q1, down from 6% in Q4 2022. From the perspective of inflation worries, the MPC has identified developments in private sector regular pay as being key. Growth in that measure eased to 7% year-on-year in Q1 from 7.3% previously, in line with the Bank of England's forecast
“On balance, the latest developments in labour market quantities and prices don’t offer any obvious support to another rate rise when the MPC meets next in June. The focus now switches to the next set of inflation data, due on 24 May, to see if that shows the evidence of inflation persistence required to make the MPC increase rates again.”