Wage growth was up 0.3 percentage points to 5.9%, while unemployment held steady at 4.4% in the final quarter of 2024, data from the Office for National Statistics (ONS) has shown.
Vacancy numbers also fell for 31st consecutive period – all good news at face value but markets are now worrying about the path of inflation and when the next rate cut by the Bank of England will be.
Expectations for a March cut were already low but dwindled even further, according to Danni Hewson, AJ Bell head of financial analysis, with less than 23% of market participants now expecting a quarter percentage point cut in March.
“It feels like we’re enjoying the calm before the storm. Big black clouds are swirling on the horizon if you factor in all the surveys and data from recruitment agencies which suggests that businesses are cutting back on their hiring intentions for the year and will consider job cuts and smaller wage hikes after April,” she said.
“The pressure of those National Insurance changes coupled with an increase in the National Living Wage is being considered a tax on jobs and the big question is how bad the post-Budget weather will really get and whether the UK jobs market is sufficiently robust to ride it out.”
This data corroborates the view that the Purchasing Managers' Index (PMI) survey data (an indicator of the prevailing direction of economic trends in the manufacturing and service sectors) has been overstating the degree of economic weakness, according to Patrick O'Donnell, senior investment strategist at Omnis Investments.
“Wage growth is still relatively elevated and price pressures are still evident, meaning that we’re not going to see an imminent change in the ‘gradual and careful’ rate-cutting strategy just yet,” he said.
A more precise indication will arrive tomorrow morning with the inflation data, which is expected to have nudged closer to 3% in January after December’s unexpected fall.
But Hewson questioned how much of that rise will be from factors such as energy prices and how much from the “bruised but resilient” service sector.