UK pay growth beats expectations before BoE decision

British wages grew faster than expected in the three months to April, with pay growth excluding bonuses holding at an annual rate of 3.4%, despite unemployment unexpectedly dipping to 4.9%.

British wages grew faster than expected in the three months to April and unemployment fell, according to official data that painted a somewhat stronger picture of the job market, hours before the Bank of England announces its interest rate decision. Pay growth, excluding bonuses, held at an annual rate of ‌3.4%, the Office for National Statistics said on Thursday, rather than slowing to a fresh five-year low of 3.2% as economists had predicted in a Reuters poll. The jobless rate unexpectedly dipped from 5.0% to 4.9%, its joint-lowest since the middle of last year, though this reflected fewer people seeking work and the broad picture remains one of more unemployment and slower pay growth than a year ago. "With the full impact of higher energy prices and tighter financial conditions set to weigh on hiring ‌over the summer, we expect the margin of slack in the labour market to widen from here," said Andrew Wishart, senior economist at German bank Berenberg. The BoE is closely watching Britain's job market to see if higher oil prices ‌caused by the Iran war trigger bigger wage rises, or if demand for workers is too weak for people to be able to bargain for higher pay.

The central bank is widely expected to keep interest rates on hold at 3.75% later on Thursday, probably with a 7-2 vote, and most policymakers think the job market now is weaker than in recent years, making outsize wage rises less likely. But Thursday's pay data may help convince one or two Monetary Policy Committee members to back a call for higher rates, despite lower than expected inflation data on Wednesday. "The fact ⁠that wage growth ​came in a bit stronger today will certainly interest the ⁠hawks on the Monetary Policy Committee, but we think it is unlikely the Bank delivers the same kind of hawkish message as the U.S. Fed last night," Luke Bartholomew, deputy chief economist at fund managers Aberdeen, said. WAGE GROWTH IS ONE FACTOR BEHIND STICKY UK INFLATION After Russia's full-scale ⁠invasion of Ukraine in 2022, inflation peaked at 11.1% and wage growth spent nearly three years above 5%, contributing to the BoE's difficulty getting inflation back to its 2% target.

The central bank judges that wage growth much above 3% makes it hard to achieve 2% inflation ​on a lasting basis due to persistently weak productivity growth. The unemployment data is based on an ONS survey which has suffered from low response rates in recent years, making trends harder to read, though the ⁠ONS says the latest surveys now have response rates close to their pre-pandemic levels. Alternative ONS data, based on tax office figures, showed the number of workers on company payrolls rose by 2,000 in May. This data is often heavily revised and an initial drop of 100,000 reported for April - the biggest ⁠since ​May 2020 - was revised down to 53,000, still the largest in over five years. BUSINESSES WARN OF HIGHER UNEMPLOYMENT Many employers are reluctant to hire - hit by rising employment costs and patchy domestic demand - and earlier this month the Confederation of British Industry forecast the unemployment rate would reach an 11-year high of 5.5% this year. The slowdown has particularly affected younger people seeking to enter the labour market, and unemployment for 16-24 year olds held at 16.2% in April, its ⁠highest since late 2014. Job vacancies in the three months to May fell to their lowest since early 2021 at 707,000, down from a peak of around 1.3 million in 2022 when the labour market was tightest.

And below ⁠the surface, some of the wage data is less ⁠robust than at first glance. While total pay growth was its joint-highest since late 2025 at 4.4% in the three months to April - beating forecasts of a 4.0% rise - that reflected larger bonuses in the financial services sector and the earlier timing of annual pay increases for some health workers.

Private-sector annual wage growth excluding bonuses - watched closely by the BoE - slowed ‌to 2.9% in the three months to April ‌from 3.1% in the three months to March, the smallest rise since late 2020.