LONDON, March 19 - Annual growth in regular pay, measured excluding bonuses, registered at 3.8% for the three months to January, the Office for National Statistics reported on Thursday. This outcome came in under the consensus of economists polled, who had largely projected a 4.0% increase in regular average weekly earnings.
Policymakers at the Bank of England had been balancing two distinct risks in recent months: on one hand, the potential for entrenched inflationary pressure stemming from a hot labour market; on the other, signs that hiring had softened recently, which would point to reduced wage momentum. Those competing signals had left the direction of UK monetary policy uncertain.
Into that delicate calculation has come a fresh factor: a marked jump in energy prices since the onset of the war in the Middle East. That rise in energy costs has introduced new inflationary pressure into the outlook, complicating the BoE's assessment of whether labour-market dynamics or external cost shocks pose the greater risk to price stability.
Market expectations shifted as a result. Where a quarter-point reduction in official interest rates had been considered a plausible outcome as of a short time ago, the BoE is now widely expected to leave borrowing costs unchanged when the Monetary Policy Committee concludes its March meeting at 1200 GMT on Thursday.
For firms and sectors sensitive to input costs and consumer spending, the combination of slower wage growth and higher energy prices presents a mixed picture. Slower growth in regular pay can ease some pressures on margins and consumer demand, while rising energy costs can squeeze margins for energy-intensive producers and feed through to consumer prices via higher bills and distribution costs.
These developments leave the central bank navigating a narrow path: assessing whether the recent softening in hiring will dampen pay growth sufficiently to reduce inflationary risks, or whether the new energy-driven price impulses will sustain broader inflation, requiring policy to remain restrictive.
Data note: The 3.8% figure refers to annual growth in regular pay excluding bonuses for the three months to January. Economists' expectation referenced was 4.0% for regular average weekly earnings. The timing cited for the Monetary Policy Committee decision is 1200 GMT on Thursday.