Weakness in the job market suggests inflationary pressures are easing, although the Bank of England will likely remain cautious about rate cuts.
ADVERTISEMENTThe UK unemployment rate has risen for the first time since July and wage growth has eased, according to data released by the Office for National Statistics (ONS) on Tuesday.
In the period from November to January, the unemployment rate unexpectedly climbed to 3.9%, up from 3.8% in the three months to December.
Average earnings also slowed more significantly than expected, with pay growth excluding bonuses rising to 6.1% from 6.2% in the previous quarter.
When bonuses are factored in, earnings grew 5.6%, down from 5.8% in the previous three months.
This means that whilst wages are still growing, they are doing so at a slower rate, pointing to easing inflationary pressures and the effectiveness of high borrowing costs.
City economists had expected unemployment to remain constant and pay growth to slow to a less dramatic 5.7%.
The results will no doubt come as a relief to the Bank of England, yet the path towards rate cuts is still likely to be slow.
"Wage growth, although weakening slightly, remains relatively robust which may not be enough for the Bank of England," said Victoria Scholar, head of investment at interactive investor.
She added: "The central bank has made it clear it wants to see significant evidence that pay growth is slowing before cutting interest rates. Nonetheless it still looks like a summer rate cut is on the cards."
Danni Hewson, head of financial analysis at AJ Bell, agreed that Tuesday's results won't be instrumental in bringing a rate cut forward.
"Wage growth is still uncomfortably high and with a bit more money in people’s pockets, thanks to cuts to NI [national insurance] and falling inflation, the MPC [Monetary Policy Committee] is likely to want to watch what happens in the next couple of months before taking action," she said.
The ONS also confirmed that the number of people claiming jobless benefits increased by 16,800 in the month to February, representing an annual increase of 85,800.
Vacancies fell for the 20th time in a row, decreasing by 43,000 in the three months to February.
The number of job openings nonetheless remains significantly above pre-pandemic levels, partially driven by long-term sickness within the working-age population.
The number of inactive people, who are neither in work nor looking for employment, fell slightly in the last quarter but still stands at a near-record 2.7 million.
"We have gone from chasing record levels of employment to tackling record levels of long-term sickness," said Louise Murphy, senior economist at the Resolution Foundation.
"Getting more people from inactivity into employment is Britain’s biggest labour market challenge of the 2020s."
