Synopsis:

MUFG notes that UK wage data for February and PAYE job figures for March were slightly softer than expected but still reflect persistently elevated wage pressures. While the data complicates the Bank of England’s policy path, it remains consistent with a gradual pace of rate cuts.

Key Points:

• GBP Performance:
  The pound rallied 0.8% versus the USD ahead of the data, supported by broader USD weakness and expectations for resilient UK data.

• Wage Growth:

  • Average weekly earnings (3m YoY) remained at 5.6%, with January revised lower.

  • Private sector wages (ex-bonuses) also held at 5.9%, with a downward revision from 6.1%.

  • Despite modest softening, wage growth remains inconsistent with the BoE’s 2% inflation target.

• Policy Implications:

  • Data supports the BoE’s cautious approach, but not a full pause.

  • MUFG maintains a base case for quarterly 25bp cuts, reflecting a gradual normalization path.

• Data Considerations:

  • The BoE now relies more on labour market surveys, citing persistent reliability issues in the official jobs data.

Conclusion:

Despite sticky wage growth, the latest UK labour data won’t derail the MPC’s slow and measured easing cycle. MUFG expects the BoE to proceed with gradual 25bp cuts, as long as broader inflation trends and employment data support a soft landing scenario.