“Today’s data confirmed wage growth was easing ahead of the conflict in Iran. The risk of higher energy costs reigniting pay pressures is also lower at the moment. 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. Nevertheless, it is likely to be central to the Bank of England’s concerns and the Bank is now expected to keep interest rates on hold this year.
“Unemployment remained unchanged at [5.1]% in the three months to February, however the unemployment rate is likely to trend higher in the coming months as firms scale back on hiring in response to rising costs and weaker demand. We expect the unemployment rate to average [5.3]% in 2026.
“Pay growth fell to [3.5]% in February, down from [3.8]% in January. The recent slowdown in pay growth has been primarily driven by a fall in public sector pay settlements, which eased to [x.x]% in the three months to February. Slower economic activity is likely to see pay growth ease further over the coming months. Rising household costs are also likely to squeeze workers’ real pay as the impact of higher prices filters through.”
