David Milliken

LONDON (Reuters] – Britain’s unemployment rate fell to below its pre-pandemic levels in January, while wages rose quicker than expected according to official figures. These numbers are likely to support the Bank of England’s plan to increase interest rates.

Data from the Office for National Statistics showed that the unemployment rate was 3.9%. This is despite Omicron Wave COVID-19. It was 4.1% lower than the previous quarter of 2021. This is also its lowest point since January 2020.

In the three months ending February, the number of job openings reached an all-time high at 1.318 millions. This is a sign that there’s a labour shortage.

Paul Dales of Capital Economics, the chief UK economist said that the Bank of England will continue to tighten the labour market. “Despite the extra impact on households’ real incomes due to the conflict in Ukraine,” he stated.

After Thursday’s central bank policy meeting, the BoE will likely raise the Bank Ratio by 25% to 0.75%.

BoE’s survey of firms showed that nearly 5% of respondents intended to increase their pay this year. This is a much higher figure than in previous years, or the pay settlements recommended by other surveys.

The rate of interest was increased to 0.75 % by four policymakers last month.

BoE worries that inflation due to soaring energy costs and post-COVID bottlenecks may take a while to subside.

PAY BARELY MATCHES THE PRICES

In the three months ending January, average earnings were 4.8% better than a previous year. This is higher than what was predicted in a Reuters poll that expected a rise of 4.6%.

Although this rate is only barely keeping up the inflation rate, it still represents a 0.1% increase in real terms pay based on the ONS’s preferred CPIH inflationrate. It also means that there has been a faster rate of pay growth since the outbreak.

The annual decrease in real-terms wages, which exclude bonuses, was however 1.0% higher than the year before. This is the highest monthly drop since the three months ending July 2014.

BoE forecasts show that living standards could see their lowest point in over 30 years. This is according to BoE projections, pre-dating the recent inflation shock.

This squeeze on real incomes should limit inflation over the medium term as domestic demand falls and unemployment rises.

Economists remain unsure if there has been any significant improvement in the bargaining ability of British workers since 2008’s global financial crisis.

Although the British economy is slightly more productive than it was before the pandemics, its labor force shrank by approximately 500,000. This is largely because workers over 50 have dropped out and many of them retired early.

The employment figures for Tuesday showed that the number of employed people fell 12,000 between January and February, which is below what polls predicted.

Preliminary payroll data for February, which is based solely on tax data but does not include self-employed workers, was less reliable. They showed a monthly increase of 275,000. The January increase, however, was revised down from 108,000 to 61,000.

Rishi Sunak, British Finance Minister, stated that he believed the labor market would be able to meet the “current global challenges”, with record-low redundancies.