By Joshua Kirby


Unemployment ticked higher and wage growth slowed in the U.K. in the three months to February, adding to key signs that inflation is easing and making interest-rate cuts likelier in the coming months.

The unemployment rate stood at 4.2% over the period, still relatively low by historical standards but higher than it has been since the three months to August last year, according to Office for National Statistics figures set out Tuesday. It is also higher than economists had expected, according to a Wall Street Journal poll that saw the rate at 4.0%.

As joblessness crept higher, average regular pay growth eased to 6.0%, continuing last month's trend of slower salary increases, albeit coming in a little higher than expectations. For the three months to March, vacancies fell slightly, but remain well above the prepandemic era, the ONS said.

"We are now seeing tentative signs that the jobs market is beginning to cool," said Liz McKeown, director of economic statistics at the ONS.

The cooler jobs market will keep policymakers confident that inflation is easing sustainably, according to Paul Dales, an economist at Capital Economics.

"If it wasn't for the clear weakening in activity in the labor market we'd be a bit worried that the UK's disinflation process is grinding to a halt like in the U.S.," Dales said. "But with employment falling sharply and the unemployment rate climbing, we suspect wage growth will continue to ease in the coming months."

The Bank of England is expected this summer to cut its key bank rate from its current 5.25%, the highest level since 2008, as price rises steadily slow. Nevertheless, stubbornly high inflation in the U.S. could throw a spanner in the works. Prices have at the start of 2024 accelerated in the U.S. as Americans spend energetically and the country's jobs market stays tight, putting into doubt the Federal Reserve's own rate-cutting path. For the BOE, lowering policy rates before the Fed does would risk weakening the pound and driving up import prices, threatening a renewed spike in consumer prices.

But the BOE could in any case choose to act ahead of the Fed, Dales said. Lower wage growth "may allow the bank to cut interest rates in June, even if the Fed doesn't move until September," he said.


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


(END) Dow Jones Newswires

04-16-24 0303ET