The UK unemployment rate remained unchanged, but wage growth picked up in the fourth quarter, supporting the Bank of England's cautious approach to further policy cuts.

The jobless rate came in at 4.4 percent in the three months to December, the same as in the preceding period, the Office for National Statistics said on Tuesday. Economists had forecast the rate to rise to 4.5 percent.

Average earnings excluding bonus grew at a pace of 5.9 percent on a yearly basis, following a 5.6 percent rise in the previous three-month period. The rate came in line with expectations and marked the strongest since the three months to April 2024.

Including bonus, average earnings advanced 6.0 percent from a year ago, the fastest since late 2023. Moreover, this was slightly bigger than the forecasted 5.9 percent.

Although there was a small improvement in labor market activity in December and January, employment growth remains subdued as looming higher business taxes and a higher minimum wage is weighing on labor demand, Capital Economics economist Ashley Webb.

However, with wage growth still uncomfortably high, the BoE will probably continue to cut interest rates gradually, the economist added.

Data showed that payrolled employees for January increased 21,000 from the last month and increased by 49,000 from the previous year to 30.4 million.

The number of vacancies decreased 9,000 from the prior quarter to 819,000 in the November to January period. Vacancies decreased on a quarterly basis for the 31st consecutive period.

British Chambers of Commerce Deputy Director of Public Policy Jane Gratton said there are clear signs of further loosening in the labor market with fewer vacancies, although they remain just above pre-pandemic levels.

Nonetheless, pervasive skills shortages mean firms are competing for talent and wage growth remains strong, Gratton added.

Earlier this month, the U.K. central bank had reduced its interest rate by a quarter-point to 4.50 percent, which was the lowest since June 2023. The rate setting committee said a gradual and careful approach to the further withdrawal of monetary policy restraint was appropriate.

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