You are here: Home » International » News » Economy
Business Standard

UK earnings after inflation shrink at fastest pace since 2014

Inflation hit an almost four-year high of 2.9% in May

Reuters  |  London 

UK earnings after inflation shrink at fastest pace since 2014

British workers' after are shrinking at the fastest pace since 2014, underscoring the economic challenge facing a weakened Prime Minister as the squeeze on consumers tightens faster than expected, data showed.

While a joint record-high proportion of are in work, the fall in real-terms wage growth pointed to tougher times ahead for consumers, the main drivers of

hit an almost four-year high of 2.9% in May, fueled by the fall in the pound since last year's Brexit vote and adding to the strain on household budgets, according to data published on Tuesday.

Wednesday's wage figures suggest there will no let-up soon.

Workers' total including bonuses after taking into account fell by an annual 0.4% in the three months to April after edging up 0.1% in the first quarter.

That marked the biggest real-terms drop since the three months to September 2014, potentially adding to speculation that the government might loosen its grip on public spending to help steer Britain's away from a slowdown.

The squeeze on is also likely to add to the view among the majority of officials to leave interest rates on hold when they announce their latest policy statement on Thursday.

Sterling hit a day's low against the dollar after the data, while British government bond prices rallied.

"Unless the government gets its act together, we'll soon be in the middle of another cost of living crisis," said Frances O'Grady, general secretary of the Trades Union Congress.

May is still trying to strike a deal with a small Northern Irish party that will give her enough votes in parliament to allow her government to pass legislation, after losing her majority in a botched national election last week.

Mixed signals from jobs market

Britain's has been resilient to political uncertainty since last June's Brexit vote. But growth slowed sharply at the start of this year as the rise in driven by the post-referendum fall in the pound began to bite.

The Office for National Statistics (ONS) said the unemployment rate in the period between February and April held steady at a more than four-decade low of 4.6%, in line with the median forecast in a Reuters poll of economists.

In nominal terms, wages grew at the slowest pace since February 2016, rising an annual 2.1% in the three months to April and slowing from 2.3% in the first quarter.

Economists taking part in a Reuters poll had expected wage growth of 2.4%.

"The wage figures are astonishingly weak," said Samuel Tombs, economist at consultancy Pantheon Macroeconomics.

The wage numbers jarred with the picture of strong jobs growth but appeared consistent with signs of rising underemployment, Tombs said.

The ONS revised its data for wages to improve the methodology for from small businesses, resulting in lower estimates for wage levels but little change overall to growth rates.

Excluding bonuses, nominal rose by 1.7% year-on-year, the weakest increase since January 2015 and against expectations for a 2% rise.

The is watching wage growth closely as it gauges whether the increase in is creating longer-lasting pressure on prices. It expects wages to rise by 2% this year before picking up in 2018 and 2019.

The central bank is widely expected to keep interest rates at their record low of 0.25% on Thursday.

The number of people in work increased by 109,000 in the three months to April, taking the employment rate to 74.8%, a joint record high, the ONS said.