“Today’s data strengthens the case for a continued wait-and-see approach from the Bank of England and we expect the Bank to keep interest rates unchanged at its June meeting. Wage growth has fallen further, while underlying labour market conditions are loosening. Although the Bank will continue to monitor wage dynamics closely, concerns around persistent wage pressures are likely to be tempered by the weak state of the labour market.
“Wage growth eased to 3.4% in March, with both private and public sector pay growth slowing. Workers are likely to face a period of declining real pay, as headline inflation is set to outpace earnings, driven by higher energy and food prices.
“Unlike the 2022 energy shock, the weaker labour market is expected to limit workers’ ability to secure higher pay settlements to offset rising costs. Businesses are also likely to be more cautious in raising prices than they were in 2022, when demand was stronger and firms were hit simultaneously by rising input costs and stronger pay pressures. That said, the rise in labour costs following the Budget last year has served to squeeze margins for many.
“Headline unemployment increased to 5% in the three months to March. Forward-looking indicators point to marked softening in hiring intentions, suggesting that this improvement is unlikely to be sustained. Vacancies also edged lower in April, suggesting that the conflict in Iran is beginning to weigh on hiring. As a result, we expect unemployment to rise gradually over the coming months.”
