• Data show high employment levels, no `significant' pay pickup
  • Report comes as Osborne prepares to deliver annual budget

U.K. unemployment held at its lowest rate for a decade and wage growth ticked higher as the labor market continued to improve.

Wage growth excluding bonuses climbed to 2.2 percent in the three months through January, the Office for National Statistics said in London on Wednesday. Economists had forecast a pickup to 2.1 percent from 2 percent in the fourth quarter. Unemployment fell by 28,000, leaving the rate at 5.1 percent, the lowest since early 2006.

“Once again the latest quarterly figures show continuing high employment levels but no significant pickup in earnings growth,” said ONS statistician Nick Palmer.

The data are unlikely to worry Bank of England policy makers, who have signaled they are happy to keep interest rates at a record low until there are clearer signs of inflationary pressures.

The report come as Britain awaits Chancellor of the Exchequer George Osborne’s latest budget, when he’s forecast to announce more spending cuts as part of efforts to eliminate the deficit by the end of the decade. He will unveil his new fiscal plans in an address in Parliament at 12.30 p.m. in London.

The pound was trading at $1.4113 as of 9:40 a.m. in London, down 0.3 percent from Tuesday.

New Estimates

Jobless benefits, a narrower measure of unemployment, fell 18,000 February to 716,700, leaving the rate at 2.1 percent, the lowest since 1974. In January, the count fell 28,400 instead of the 14,800 drop originally reported. The figures include revisions going to May 2013 that reflect improved estimates of Universal Credit, a new type of welfare benefit. The effect of those revisions reduced the claimant count by 67,700 in 2015.

Wage growth including bonuses accelerated to 2.1 percent in the three months through January from 1.9 percent in the final quarter of 2015.

The number of people in work rose 116,000 to a record 31.4 million, while unemployment fell to 1.69 million. In the fourth quarter, employment in central and local government rose by 11,000 to 5.17 million, partly reflecting hiring in the National Health Service.

Single month figures show the jobless rate fell to 5 percent in January from 5.3 percent in December, while average earnings excluding bonuses edged up to 2.2 percent from 2.1 percent.

Labor Puzzle

Labor data has proved a puzzle to BOE policy makers in recent years, with record employment and a falling jobless rate not yet boosting wage growth.
The BOE will probably keep its key interest rate at 0.5 percent when it announces its latest decision on Thursday. With inflation far below their 2 percent target, officials have indicated they’re in no rush to raise the rate, which has been at a record low for seven years.

Still, they’re monitoring the job data for any signs that the tightness in the labor market will general inflation pressures.

Dan Hanson, an economist at Bloomberg Intelligence in London, says the U.K. may see only a modest pickup in productivity growth, which would mean unit wage costs accelerating.

“Should the expansion continue uninterrupted, cost pressures emanating from the labor market are likely to prompt the BOE to lift rates in November, sooner than markets expect,” he said in a note on Tuesday.

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