London, April 11 (Bloomberg) -- U.K. wage growth accelerated as joblessness fell toits lowest in 26 years, giving a fillip to Prime Minister Tony Blair ahead of a generalelection likely to be held in June. Average incomes rose 5 percent in the three months through February, boosted bybonuses paid to workers in financial services, from a revised 4.5 percent in thequarter through January, National Statistics said. The jobless total fell in March by5,500 leaving the unemployment rate at 3.3 percent. While a slowdown in the U.S. economy is starting to have an impact in Europe, ithasn't hurt the U.K. labor market yet. The prospect of job cuts by investment banks,however, suggests the Bank of England will ignore the latest growth in wages indeciding whether to lower interest rates in coming months. ``Stock markets are so bad you will see salaries fall,'' said Kirsty McAlpine, aheadhunter at tmp.worldwide. ``People won't be expecting big bonuses.'' The yield on the sterling futures contract for June rose 10 basis points to 5.26percent, indicating investors still expect a quarter point rate cut in coming months.The bank cut its benchmark rate a quarter point to 5.5 percent last week, the secondsuch reduction this year. The U.K. benchmark rate is 75 basis points higher than the European Central Bank'smain rate of 4.75 percent, which the bank left unchanged in a review of rates today. ``The bonuses won't be sufficient to hold back another rate cut,'' said Glenn Davies,the chief economist at Credit Lyonnais Securities, who expects to see a reduction inMay. Deutsche Bank AG and ING Groep NV are reining in expenses on concern over aslowdown and falling stock prices. ING will axe 1,000 jobs, half of them in London.
Joblessness Falls
The decline in joblessness last month came after a revised 5,600 drop in February.Economists expected unemployment to fall by 5,000, leaving the jobless rate at theoriginally estimated 3.4 percent level recorded in February. That rate was revisedlower after changes in the way unemployment is calculated. The labor market is ``tight,'' said Ian McMorris, managing director of Ulster WeaversHome Fashions Ltd., a Belfast-based furniture maker. ``We've had a 15 to 25 percenthike in salaries over the last 12- to 15-months.'' For much of last year, Bank of England policy makers said they were concerned theshrinking pool of available workers would push inflation past the government's 2.5percent a year target in coming months. In recent weeks, those concerns have been pushed to the back burner as slowergrowth in the U.S., the world's biggest economy, starts to touch Britain's businesses. The surge in incomes growth, National Statistics said, was ``almost entirely due tolarge bonus payments in the financial services sector in February.'' Analysts saidmost of those bonuses were paid to workers in the City, London's financial district. The central bank's nine-member committee is anxious to avoid a more widespreadsurge in wages that companies pay to attract and keep workers. And there isn'tevidence that the bonus payments have lifted overall wages.
Household Spending
Even so, low unemployment and rising wages have put cash in Briton's pockets,powering household spending that accounts for two-thirds of the economy. ``Job applicants are in a stronger bargaining position,'' said Andrew Hallam of therecruitment consultancy Euro London Appointments Ltd. ``They can ask for 10percent more of the salary that they would normally get.'' Other measures of unemployment suggest the economy still has room to growwithout igniting a boom in wages. A survey conducted to International LaborOrganization standards put Britain's unemployment rate at 5.2 percent in the quarterthrough February, down from 5.3 percent in the three months ended in November. That measure put the total number of unemployed at 1.53 million, above thegovernment's count of 995,200 for March, which adds up the number of people out ofwork who draw jobless benefits. For the Labour government, which called regional elections for June 7 and probablywill name that as the date of the general election too, the size of the workforce is asimportant as its future health. Businesses complain that new rules governingeverything from maternity leave to overtime pay make Britain a less attractive place tofind a flexible workforce.
Red Tape
``We try not to employ people if we can help it,'' said Simon Eccleston, chiefexecutive of Automation Industries Ltd. The closely held factory equipment makerrelies on 65 freelance designers, many stationed overseas. ``The red tape andburdens make this a bad place to employ people.'' Either way, growth in the labor market has boosted wages during the past fewmonths. The central bank regards the 4.5 percent level as the maximum associatedwith stable prices at the retail level. The Bank of England will want to see incomesgrowth drop back again to be consistent with its rate-cutting policy. February's seasonally adjusted annual growth rate in average incomes of 5.9 percentcame after a revised 4.3 percent rise in January. Stripping out seasonal adjustments,the growth was 6.0 percent in February and 4.4 percent the month before. Bonusesaccounted for 1.9 percent of that gain in February and 0.6 percent in January. National Statistics didn't break out exactly how much of the bonuses were paid out toworkers in London's financial district. In private services industries, wages grew 7.6percent in February after 5.0 percent growth the month before. Bonuses accounted for 3.3 percent of the increase in the latest month reported, morethan double the 1.6 percent rate of the prior month.
Suspend Judgment
Britain's leading business lobby group urged the central bank to hold off on making ajudgment over where wages are headed based on today's figures, saying the surgemay be a one-off occurrence. ``Firms have brought forward their March bonuses to February,'' said Sudhir Junankar,an economist at the Confederation of British Industry. ``We need to see the Marchdata in order to get a fuller impression of the underlying trend.'' Manufacturing unit wage costs, a measure of productivity in industry, declined by 1.4percent in the three months through February, the same as the quarter throughJanuary after being revised from a decline of 0.5 percent previously estimated.Economists expected a decline of 0.7 percent.