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British wage growth slowed on the eve of the war with Iran, official data shows, suggesting workers will find it difficult to negotiate higher wages to offset the price shock caused by the conflict.
Average weekly wages, excluding bonuses, were 3.6 percent higher in the three months to February than a year earlier, the Office for National Statistics said on Tuesday, compared with 3.8 percent in the three months to January. Analysts had expected wage growth to slow to 3.5 percent.
When inflation is taken into account, wages rose by just 0.2 percent, even before households began to feel the impact of higher fuel prices following the US-Israeli invasion of Iran in late February.
The ONS also said vacancies fell in the three months to March, reaching their lowest level since early 2021, suggesting the outbreak of war has hit hiring after a more stable period at the start of the year.
Wage unemployment, which fell in the run-up to last year’s budget, was little changed in the three months to February from the previous quarter, with provisional figures for March showing only a small fall of 11,000.
The data drew a muted reaction from investors, with the pound little changed at $1.352.
Separate figures from the ONS Labor Force Survey also showed a fall in unemployment to 4.9 per cent in the three months to February, down 0.2 percentage points on the previous quarter. However, this was largely due to people leaving the labor market as economic inactivity increased this quarter.
The wage figures will provide some relief to Bank of England policymakers, who have been struggling with above-target inflation for almost five years and now face an even longer overshoot due to the Iran-related energy price surge.
Andrew Bailey, the central bank governor, has indicated he expects a weak labor market to make the “second round” effects of rising energy and food prices less likely than in 2021-2022, reducing the risk of a wage-price spiral fueling persistently high inflation.
Yael Selfin, chief economist at KPMG, said: “Unlike the 2022 energy shock, the labor market is in a weaker state, limiting workers’ bargaining power and reducing the chance of a potential wage-price spiral.”
Work and Pensions Secretary Pat McFadden said the figures showed the labor market had improved at the start of the year, but added: “We cannot escape the consequences of the war in the Middle East” – although the government would “do everything we can to support the country during this period, including by cutting energy bills by up to 25 per cent for 10,000 manufacturers.”
