Wages grew at their fastest pace in nearly two years as workers benefited from new pay deals and a rise in the national minimum wage.
Official figures from the Office for National Statistics showed average weekly earnings, excluding bonuses, rose from 6.7 per cent to 7.2 per cent in the three months to April, ahead of economist forecasts of a jump to 6.9 per cent.
It was the fastest acceleration in regular pay since June 2021 and the highest on record outside the pandemic, said the ONS.
Stronger wage growth was widely anticipated on the back of the introduction of a higher national minimum wage and living wage in April. Many private sector employees also set new annual pay awards which began during the three-month period which coincides with the start of the tax year.
The ONS said weekly pay including bonuses climbed from 5.8 per cent to 6.5 per cent, also above economist forecasts.
The figures will pile the pressure on rate-setters at the Bank of England who are looking for signs of inflationary pressures strengthening across the economy. Strong wage growth often translates to rising inflation as employees are partially compensated for higher prices and can maintain their spending habits.
Real wage growth, which strips out inflation, remained negative due to the double-digit inflation reported in February and March.
The labour market showed some signs of cooling as the unemployment rate edged up by 0.1 percentage points to 3.8 per cent in the three months to April, below the 4 per cent forecast by economists. The ONS said the rise in the jobless rate was driven by people who had been out of work for over a year.
The UK labour market has been running hot for the last year, defying the pressure from rapidly rising interest rates as companies have continued to hire and retain workers.
The number of vacancies in the economy, which has been steadily declining after hitting a record last summer, fell by 79,000 to 1.05 million. Total payrolled employees were up in May, rising by 23,000, after an unexpected drop of 135,000 in April to take the total to a record of 30 million people in jobs.
April’s labour market report comes ahead of the Bank’s next interest rate decision on June 22, where the MPC is expected to increase borrowing costs by another quarter of a percentage point to 4.75 per cent. Inflation has failed to come down in line with the MPC’s projections and was at 8.7 per cent in April.
Yael Selfin, chief economist at KPMG, said: “Continued strength in pay growth will warrant higher interest rates. The pickup in regular pay growth is the latest sign that inflation is driving up pay demands, which in turn is making inflation stickier.”
A closely-watched measure of labour force inactivity, which calculates the proportion of the population not looking for work, dropped by 0.4 percentage points to 21 per cent. The ONS said that the number of people who reported long-term sickness as their reason for not working hit a record between February and April.
The UK has suffered from one of the worst declines in labour force participation after the pandemic, a factor which has drastically reduced the supply of workers and helped existing employees negotiate better pay deals.
Catherine Mann, an external member of the Bank’s Monetary Policy Committee, this week warned that early retirees risked stoking intergenerational tensions as younger workers would be forced to shoulder the burden of their retirement through higher taxes to fund public services.