Wages rose at an annual rate of 2.9 per cent during the first quarter of the year, while the UK's unemployment rate remained at its joint lowest level since 1975.
UK unemployment fell by 46,000 in the opening three months of 2018, compared to the end of last year, according to data published this morning by the Office for National Statistics (ONS).
Figures show that average weekly nominal pay – not adjusted for inflation – increased by 2.9 per cent excluding bonuses. Wages rose faster than inflation for the first time in more than a year, as over the same three-month period, the inflation rate was 2.7 per cent.
Real basic pay, adjusted for inflation, is growing at around 0.4 per cent.
Total pay though, including bonuses, only grew by 2.6 per cent - so was unchanged after taking inflation into account.
The pound fell 0.07 per cent against the dollar to $1.3546 following the ONS announcement.
The unemployment rate fell from 4.6 per cent last year to 4.2 per cent for the three-month period from January to March 2018, in line with expectations.
The statistics mean 32.34m people are in work, 197,000 more than for October to December 2017, while there were 1.42m unemployed people, defined as those not in work but seeking and available to work.
Economists said wage growth hikes would be the key numbers. An analyst at XM said: "Wage growth figures will be closely watched, as maybe they have the greatest capacity to stoke expectations for a rate hike by the Bank of England sooner rather than later."
Ben Brettell, senior economist at Hargreaves Lansdown, said: "What a difference a month makes. April’s labour market report from the ONS revealed wages growing faster than inflation, and saw the chance of a May interest rate rise soar to more than 85 per cent.
"Disappointing first quarter growth figures poured cold water on any chance of a rate rise last week, and today’s labour market numbers add further weight to the argument that higher rates really aren’t warranted just now.
"Wage growth fell back to 2.6 per cent in the three months to March, down from 2.8 per cent a month earlier. Unemployment held steady at an ultra-low 4.2 per cent. Meanwhile the claimant count, which in a quirk of the data is a month more up-to-date than the rest of the report, jumped unexpectedly to 31,200. This might indicate some softening in the labour market, though it’s really too early to say.
"Ultimately it looks like we’re back in the ‘Goldilocks’ situation – the economy’s not too hot to stoke domestic inflation and force interest rates higher, and not too cold to induce any panic among policymakers."
He said that the news would not guarantee a rate rise for the rest of the year, and if and and when do rise, it will be gradually. "When they do rise, they’ll do so only gradually, and peak at much lower levels than in previous cycles," he said. "But while savers will be disappointed, it’s pretty good news for investors. Stock markets don’t tend to like rising interest rates much, so an environment where rates rise only gradually should be supportive for the UK stock market. Pessimism around the UK market abounds, which looks like something of an opportunity."