Investing.com - The U.K. unemployment rate rose in March, data showed Tuesday, as employers anticipated the impact of higher employment costs, even before the potential impact of U.S. President Donald Trump’s volatile trade policies.
According to the Office for National Statistics, the jobless rate rose to 4.5% in the three months to March, as expected, up from the 4.4% seen in February.
However, pay growth across the whole economy, excluding bonuses, dropped to an annual 5.6% rate in the three months to March, below the 5.9% seen the prior month, and the 5.7% expected. This was the slowest increase since the three months to November last year, the ONS said.
Higher national insurance contributions and the rise in the national living wage, which both came into effect in April, appear to have deterred employers from taking on staff.
"The further softening in employment," said analysts at Capital Economics, in a note, "suggests businesses continued to respond to the rise in business taxes and the minimum wage by reducing headcount."
The Bank of England referenced a cooling labor market as it cut interest rates last week, and the policymakers will have noted a lessening in the strength of wage growth as a source of inflation pressure.
"Overall, the combination of weakening labor activity but still-high wage growth leaves the Bank in a tricky position," added Capital Economics. "If the jobs market remains weak, then underlying price pressures should eventually fade markedly. But sticky wage growth may mean the Bank remains uneasy about inflationary pressures in the near term. As a result, the “gradual” interest rate cutting path will remain the balancing act."
Additionally, the economy will have to cope with the uncertainty created by the U.S. president’s import duties, even though last week’s U.S.-U.K. trade deal may have lessened these concerns.