UK wage growth held at a level that Bank of England Governor Andrew Bailey said is fueling inflation, maintaining pressure for higher interest rates.

Average weekly earnings excluding bonuses rose held at 7.3% in the three months through May after figures for the period through April were revised up, the Office for National Statistics said Tuesday. Economists had expected a slowdown to 7.1%.

The figures are the first of two pieces of crucial data that will shape the Bank of England's next decision on interest rates due on Aug. 3. 

The report also showed strong employment growth but an unexpected tick up in the unemployment rate to 4% as more people looked for jobs -- a sign that tightness in the labor market may be starting to ease.

Policy makers led by Bailey are concerned inflation remains more than four times higher than their 2% target, with workers demanding higher pay to compensate for a squeeze on their living standards coming from soaring prices. Inflation data is due on July 19.

Tightness in the labor market is one of the main factors fueling inflation in the UK, which at 8.7% in May was higher than any other Group of Seven nation. Bailey used his Mansion House speech on Monday to warn that wage pressures are currently too strong to rein in price growth in the UK.

More than 500,000 people dropped out of the British workforce in the pandemic, forcing companies to offer higher pay to attract the staff they need. Bailey has said employers are also hoarding workers after facing recruitment difficulties, keeping unemployment extremely low.

Source : Bloomberg