Britain’s employers showed signs of caution in March after the start of the Iran war with a measure of hiring falling during the month and the lowest number of job postings in almost five years, according to data published on Tuesday.
There were signs of some stability in the jobs market in the run-up to the conflict with official data showing wage growth – closely watched by the Bank of England – cooled by less than expected in the three months to February.
Britain’s unemployment rate also fell unexpectedly in the same period, although this was due in part to rising numbers of students not looking for work.
The figures that covered the month of March suggested a shift in the mood among employers.
“Big picture, we do not think today’s data will alter the BoE’s image of the labour market,” Sanjay Raja, chief UK economist at Deutsche Bank, said. “The UK labour market is not out of the woods yet.”
The BoE has said it believes the jobs market is softening but it is watching wages data carefully as it gauges inflation pressure in Britain’s economy, which investors view as highly vulnerable to the jump in energy prices caused by the Iran war.
Growth in average weekly earnings, excluding bonuses, slowed to 3.6% in annual terms over the three months to February from an increase of 3.8% in the three months to January, the Office for National Statistics said.
However, economists polled by Reuters had mostly expected a sharper slowdown in regular average weekly earnings growth to 3.5%.
Some BoE officials think rising slack in the labour market will help to contain the risk that price pressures become further embedded in the economy.
Tuesday’s data offered more signs of job market weakness.
Vacancies fell to 711,000 in the three months to March from 721,000 in the three months to February, the lowest number since the three months to April 2021.
“In contrast to the energy shock of 2022, the labour market is in a weaker state, constraining the bargaining power of workers, lowering the likelihood of a potential wage-price spiral,” Yael  Selfin, chief economist at KPMG UK, said.
Early payroll data from the tax office – which are prone to revision – showed a small fall of 11,000 in March after a revised drop of 6,000 in February.
Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics, said there was a good chance that would be revised upwards, adding that the data overall suggested the labour market was not loosening by as much as feared.
Unemployment Rate Falls
Economists were surprised by a big reduction in the unemployment rate to 4.9% from 5.2%. The Reuters poll had pointed to no change.
The ONS said the fall in the jobless rate reflected an increase of 169,000 in the number of people considered to be inactive – or out of work and not looking for a job – over the three months to February, with employment also rising by 24,000.
Rising numbers of students who are not looking for work accounted for more than three-quarters of the shift into inactivity among 16-64 year-olds, the data showed.
Inflation data for March on Wednesday may prove more consequential for the BoE, with the Reuters poll pointing to consumer price growth of 3.3%, up from 3.0% in February.
Investors on Tuesday priced in 36 basis points of BoE interest rate hikes this year – between one and two quarter-point increases – up from 30 basis points on Monday.
BoE Governor Andrew Bailey has said the central bank should keep a clear eye on risks to growth and jobs as well as inflation when making its next decision on rates.Â
By contrast, the central bank’s chief economist Huw Pill has emphasised that keeping inflation under control is the BoE’s primary goal, and he has criticised his colleagues’ “wait-and-see” messaging.
(Reporting by Andy Bruce; Editing by William Schomberg and Hugh Lawson)
