British wages excluding bonuses grew at their slowest pace since October 2022 during the three months to the end of January while the unemployment rate edged up unexpectedly, according to data which may slightly ease the Bank of England's inflation worries.
Regular wage growth dropped to 6.1% in the three months to January from 6.2% in the final quarter of 2023, the Office for National Statistics said.
Economists had expected another reading of 6.2%.
The unemployment rate rose to 3.9% from 3.8%, reversing a dip in the final quarter of last year although the ONS is still in the process of overhauling its survey of households.
Sterling weakened against the U.S. dollar and euro immediately after the labour market data was published.
On Monday, the ONS said there was greater uncertainty than usual about the unemployment rate, equivalent to around 0.1 percentage point in either direction, due to a problem with analysing labour data from Northern Ireland.
The BoE has identified wage growth and services price inflation as the two most important indicators for whether underlying inflation pressures are easing enough for it to cut interest rates.
Wage growth is running at roughly double its rate before the COVID-19 pandemic, when inflation was close to its 2% target.
While some top BoE officials expect wage growth to drift lower as headline inflation falls, others fear that labour shortages since the pandemic will make this a slow process.
"Today's data are unlikely to warrant a major policy shift from the Bank of England, particularly with pay growth still robust and continued worries it could lead to a persistence in price pressures," Yael Selfin, chief economist at KPMG UK, said.
"However, we expect the labour market to weaken in the coming months, which should reduce momentum in wage growth and raise the prospect of interest rate cuts from the summer onwards."
BoE interest rate-setter Catherine Mann, who has been calling for further increases in borrowing costs, said on Monday that there was still "a long way" to go for inflation pressures to be consistent with the central bank's 2% target.
(Reporting by Suban Abdulla and David Milliken; Editing by Kate Holton and William Schomberg)
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