By Joshua Kirby


Wage growth picked up pace again in the U.K., likely underpinning the Bank of England's reluctance to cut its key interest rate as rapidly as its European peers.

Average regular pay grew 5.2% over the three months to October, ahead of expectations, figures from the Office for National Statistics showed Tuesday. Unemployment held steady at 4.3% over the period. Vacancies also remained above the prepandemic level, despite falling over the three-month period. That suggests the U.K. labor market remains tight.

"After slowing steadily for over a year, growth in pay excluding bonuses increased slightly in the latest period, driven by stronger growth in private sector pay," ONS statistician Liz McKeown said.

Sterling gained against the dollar following the news.

With rapid wage growth fueling inflation, the BOE has lowered borrowing costs more slowly than peers such as the European Central Bank, which has cut four times this year compared with just two cuts from the BOE. The Federal Reserve has also lowered its key rate by a total of three-quarters of a point so far this year, including a bold half-point cut that kicked off the move toward lower borrowing costs.

"The Bank of England looks like an outlier," said James Smith, an economist at ING.

The BOE's policy committee is due to meet later this week and is widely expected to keep rates on hold in the wake of the sticky wage growth and what is expected to prove a second month of acceleration in consumer-price increases when inflation figures for December are released Wednesday. There is still some way to go before the battle against inflation is won, BOE Governor Andrew Bailey said earlier this month.

"The disinflation process is well embedded, but there is distance to travel," he told the Financial Times in an interview.

Investors expect the BOE to lower its key rate just four times in 2025, and by a percentage point in aggregate. However, there are signs that the economy is growing more slowly than the central bank had expected.

British output contracted for a second-straight month in October, presenting a headache for a new Labour government that has prioritized growth as a means of funding major increases in public spending without resorting to stepping up its borrowing.

And while business surveys released Monday indicated some resilience in U.K. economic activity in December, they also showed employment declining for a third month in a row and at the sharpest rate in just shy of four years.

That suggests unemployment could rise, cooling wages in the months ahead. Indeed, many U.K. businesses feel pressured by rapid wage growth and less able to pass on higher labor costs to customers, and around a fifth are planning to finance rising pay packets by cutting back on their staff, according to a survey set out last month by lobby group the Confederation of British Industry.


Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby


(END) Dow Jones Newswires

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