“Today’s data confirm that the labour market is still too hot, as pay growth remains uncomfortably high despite a further drop in vacancies.
“UK pay has been rising well above the rate consistent with the Bank’s 2% target due to a combination of a severe inflation shock and a tight labour market, compounded by post-Brexit staff shortages and supply chain issues. These have created unique circumstances when compared to the US or Europe, and will probably require higher UK interest rates to bring pay growth to levels where the Bank of England is comfortable.
“While the labour market is likely to weaken in the coming months, as the Bank of England becomes more insistent in its fight against inflation, any rise in unemployment may be limited by a slowing recovery in the participation rate. We expect the unemployment rate to average 4.1% this year, in line with its levels over 2017-19.”
