(Bloomberg) — UK pay growth picked up to its highest level in eight months and employment unexpectedly rose, as the jobs market appeared resilient to the Labour government’s upcoming £26 billion ($32.8 billion) increase in payroll taxes.

Wages excluding bonuses jumped 5.9% in the final quarter of 2024 from a year earlier, up sharply from a 5.6% rise previously, the Office for National Statistics said Tuesday. It was in line with economists’ expectations.

There were also more signs that the jobs market is holding up better than feared after the surge in employment costs in Labour’s first budget.

The number of payrolled employees rose 21,000 in January and is now down less 20,000 since Chancellor of the Exchequer Rachel Reeves increased employer payroll taxes on Oct. 30 and announced another big hike in the minimum wage. A fall of 30,000 for January was expected, and the decline in December was smaller than previously thought. Unemployment held at 4.4%, and vacancies rose slightly compared to the previous month.

The figures are likely to entrench caution among officials at the BOE trying to balance Britain’s sluggish growth against sticky price pressures and a resilient labor market. 

Business surveys have pointed to job cuts on a scale akin to the financial crisis in the wake of the budget. However, official data is yet to show a marked deterioration in the labor market, with early redundancies data also showing a wave of job cuts failing to materalize.

The number of reported redundancies picked up slightly in the last quarter, to 3.9 per thousand employees, but are still down year-on-year, the ONS said.

A more resilient jobs market could be a headache for the UK central bank as it tries to tame wage pressures, which Governor Andrew Bailey has blamed for keeping services inflation elevated. 

Private-sector wage growth picked up to 6.2%, slightly below the BOE’s forecast 6.3%.

The figures come just a day before data that is expected to show that inflation climbed to 2.8% in January, the highest in 10 months. Persistently high wage growth and predictions of a resurgence in inflation have prompted the BOE to warn businesses and households to expect only “gradual and careful” rate cuts.

The central bank sees how businesses react to the increase in national insurance contirbutions as crucial for monetary policy. Firms could either pass the costs back to consumers, further stoking already resurgent inflationary pressures. Alternatively, businesses could reduce wage growth and make job cuts, stemming price pressures from the labor market. 

The BOE expects firms to spread the pain through multiple channels, though it said at the February meeting that it now expects a slightly larger impact on prices in the near term.

Business surveys for pay growth in 2025 point to it easing slightly to around 4%, levels officials still see as too high to keep inflation at the 2% target on a sustainable basis.

Officials have been struggling to get an accurate reading of the labor market’s strength after a plunge in survey responses prompted concerns over the accuracy of official estimates for unemployment, employment and economic inactivity. The ONS is rushing to create a new survey to better gauge the tightness of the jobs market, though it has warned that a full transition may take until 2027.

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