Pay growth remained high at 5.8% in the three months to January, according to official data, maintaining the pressure on the Bank of England not to cut the cost of borrowing when it reveals its interest rate decision today.
The rate of pay growth fell slightly but remained well above inflation, indicating that employers continued to offer higher pay to secure skilled workers.
The fall to 5.8%, including bonuses, was in line with the forecasts of City economists and was 3.1% higher after taking into account inflation over the quarter.
Pay growth has now been above 4% for three years, the strongest run of pay growth since records began in 2001.
Bank of England policymakers would have had the data to hand when they met on Wednesday to consider cutting interest rates after a rise in unemployment and almost zero economic growth over the last six months. They are expected to keep rates level at 4.5% until the next meeting in May while pay growth remains elevated.
Unemployment remained the same in January at 4.4%, though the Office for National Statistics warned that its labour force survey was likely to be heavily revised in the coming months.
The ONS has struggled to compile the survey since the pandemic hit after a large drop in the number of people willing to complete its survey forms.
Suren Thiru, the economics director at accountancy body the ICAEW, said the figures suggest falling business confidence meant the UK’s jobs market had little momentum.
He said: “Elevated wage growth is a double-edged sword for the economy because, while it’ll help boost consumer spending – a key driver of economic growth – it may limit the pace of interest rate cuts by fuelling fears over rising inflation.”
He said a rise in employers’ national insurance next month “could well trigger both moderately higher unemployment and weaker pay settlements”.
Recent business surveys have shown a slight recovery in the demand for workers over the past month.
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Sectors that have suffered over the past year, including IT services and construction, showed a recovery in job adverts, according to a labour market tracker published by Recruitment and Employment Confederation.
A separate recent survey by the ManpowerGroup recruitment agency found the demand for workers had stabilised, despite concerns about falling levels of business confidence before tax rises come in at the start of next month.
Employer national insurance contributions are due to increase next month, harnessing £25bn for the Treasury. Meanwhile, the national minimum wage for over-21s will rise by 6.7% to £12.21 an hour.
Economists expect inflation-busting wage rises to feed through this year into higher household spending. A survey by the British Retail Consortium found that confidence in the economy and respondents’ own finances had improved.