UK earnings ease in December but BOE looks for more evidence before starting to cut rates

British earnings grew at the weakest pace in more than a year at the end of 2023, but the labor market slowdown was probably not significant enough to prompt the Bank of England into faster action towards cutting interest rates.

Wages excluding bonuses grew by 6.2% in the last three months of 2023 compared with the same period a year earlier, down from 6.7% in the three months to November and represented the slowest increase since the three months to October 2022 although above 6.0% consensus.

Including volatile component of bonuses, pay growth slowed to 5.8% from 6.7% in the three months to November, the smallest increase since the three months to July 2022 but again beating expectations at 5.6%.

The Bank of England is closely watching pay growth to gauge how much inflation pressure remains in the economy and whether it can soon start to consider cutting interest rates from their highest level in fifteen years.

The data released today also showed the jobless rate fell to 3.8% in three months to December from 4.2% previous month and fell below 4.0% forecast and employment rose by 72,000 people, slightly below previous month’s rise of 73,000.

Despite the UK labor market remains tight as businesses struggle to find and retain staff, Britain’s economy may have fallen into a shallow recession in the second half of 2023.

Economists point to persisting concern that the labor market has not cooled sufficiently to achieve a sustainable return to the 2% inflation target, which will keep pressure on the central bank.