[SUNDERLAND, 24-05-2023] The unemployment rate in the UK increased unexpectedly in the three months leading up to February. However, pay growth was higher than anticipated. This creates a dilemma for the Bank of England as it weighs on further increasing interest rates.

Higher Unemployment Rate

The Office for National Statistics reported that the unemployment rate rose to 3.8 percent, reaching its highest level since the second quarter of 2022. This was different from the expected rate of 3.7 percent.

Lower Economic Inactivity

The economic inactivity rate dropped to 21.1 percent between December 2022 and February 2023, with a reduction of 0.4 percentage points. The largest drop in inactivity was among individuals aged 16 to 24. Upon examining the reasons behind inactivity, the decline was primarily attributed to students who were not economically active.

Higher Consumer Price Inflation

In October, British consumer price inflation reached its highest level in over 40 years, hitting 11.1 percent. As of February, it remained in double digits. The Bank of England predicts that inflation will decrease to below 4 percent by year-end as wholesale energy prices decrease. However, financial markets have an 80 percent probability that the Bank of England will increase borrowing costs by 0.25 percent to 4.5 percent at their meeting, marking a 12th consecutive increase.

Higher Average Total Pay

From December 2022 to February 2023, there was a 5.9 percent increase in average total pay and a 6.6 percent increase in regular income among employees. The private sector saw an average regular pay growth of 6.9 percent during that time, while the public sector experienced a growth of 5.3 percent.

Private and Public Sector Growth

The private and public sector growth rates have become closer in recent months. However, total and regular pay growth has decreased in real terms from December 2022 to February 2023. Real total pay fell by 3.0 percent, and regular pay fell by 2.3 percent compared to the previous year. The last time real total pay fell by a larger percentage was from February to April 2009, when it fell by 4.5 percent. This fall in growth is still one of the largest since records were first kept in 2001.

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