UK Unemployment Edges Higher as Wage Growth Remains Strong
The UK unemployment rate has increased slightly to 4.3 percent in the three months leading up to July, according to official data released on Tuesday. The Office for National Statistics reported that unemployment had been at 4.2 percent in the previous quarter.
Despite the rise in unemployment, wage growth has remained at a record high. Average regular earnings growth, excluding bonuses, stood at 7.8 percent during the same period. However, this figure has been partly influenced by one-off payments to public sector workers.
In response to the data, Finance Minister Jeremy Hunt acknowledged the high wage growth but emphasized the need to tackle inflation for sustainable growth in real wages. “For real wages to grow sustainably we must stick to our plan to halve inflation,” Hunt stated.
Prime Minister Rishi Sunak had previously expressed his ambition to halve annual UK inflation when it exceeded 10 percent in early 2023. However, the current inflation rate stands at 6.8 percent, the highest among G7 nations.
The tightening of the labor market was observed in July, as noted by Ashley Webb, a UK economist at Capital Economics research group. This easing of the labor market, coupled with strong wage growth, is likely to heighten concerns at the Bank of England. Webb believes that these factors support the view that the Bank will raise interest rates from the current rate of 5.25 percent to a peak of 5.5 percent at its upcoming policy meeting next week.
The data portrays a mixed picture of the UK labor market. While unemployment has risen slightly, wage growth remains robust. The challenge lies in sustaining real wage growth while addressing inflationary pressures. The upcoming decision by the Bank of England on interest rates will be closely watched as it navigates these conflicting factors.
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