British wages rose at their slowest pace since late 2020 in the three months to January, according to official data which also suggested a weakening in employment might have bottomed out before the start of the war in the Middle East.
The figures would normally boost bets on the Bank of England cutting interest rates. But the central bank is widely expected to signal at 1200 GMT that it is waiting to see the impact of the war on Britain’s economy before deciding its next move.
Yael Selfin, chief economist at KPMG UK, said Thursday’s data would not change the BoE Monetary Policy Committee’s immediate views.
“Priorities have shifted, with MPC members set to turn their attention to the new upside risks to the inflation outlook,” she said. “This could see interest rates staying higher for longer, raising the prospect of a more pronounced loosening in the labour market over the coming months.”
Last week ONS data showed zero growth in Britain’s economy in January, but a surge in oil prices means an expected fall in inflation back towards its 2% target in April may prove more fleeting than the BoE had hoped.
SLOWEST PAY GROWTH SINCE 2020
The Office for National Statistics said regular earnings, which exclude bonuses, rose by 3.8% in the November-to-January period, the smallest increase since the three months to November 2020 and down from 4.1% in the final quarter of 2025.
Economists polled by Reuters had mostly expected regular pay growth of 4.0%. Total pay growth, which includes bonuses, showed a similar trend, slowing to 3.9%.
The ONS data also showed Britain’s unemployment rate – which is calculated from a survey that the ONS is still overhauling – held at 5.2%, its highest since the COVID-19 pandemic period but below a median forecast in the Reuters poll for a rise to 5.3%.
Unemployment for 16-24 year olds – a key focus of government concern – edged down to 16.0% from an 11-year high of 16.1% in the final quarter of 2025.
BUSINESSES HIRE MORE STAFF
Separate, more timely tax office data, also released on Thursday, showed the number of people in payrolled employment rose by a provisional estimate of 20,000 people between January and February.
In January, payrolls rose by a revised estimate of 6,000 compared with a provisional estimate of a fall of 11,000.
The latest data and revisions make it the first time that there have been three consecutive monthly rises in payrolled employment since May 2024.
“Today’s labour market data will make for some positive reading. After nearly a year of disappointment, signs of stabilisation are emerging,” Sanjay Raja, chief UK economist at Deutsche Bank, said.
Until this month, the BoE had been trying to gauge whether lingering inflation heat in the labour market or a weakening of hiring in recent months posed the bigger risk to the economy.
But new inflation pressures have emerged, caused by the jump in energy prices after the start of the war in the Middle East.
The BoE is expected to keep borrowing costs on hold on Thursday at the end of the MPC’s March meeting which, until recently, had been expected to result in a quarter-point rate cut.
The ONS data showed private sector annual regular wage growth – a measure of inflation heat closely watched by the BoE – slowed to 3.3% in the three months to January from 3.4% in the three months to December, also its weakest since late 2020.
Last month, the BoE said pay growth needed to be around 3.25% to keep inflation at its 2% target.
Deutsche Bank’s Raja said the figures showed wage growth was slowing by slightly more than the BoE had forecast, offering some relief from the worries about a new energy price shock coming from the U.S.-Israeli war on Iran.
“This, we think, can allow the MPC to remain cool-headed as we brace for another inflation wave – at least for now,” he said.
(Writing by William Schomberg）
