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UK wage growth lags inflation even as jobless rate hits new low

Reuters  |  LONDON 

By William and David Milliken

LONDON (Reuters) - Workers in Britain have yet to see their wages rise more quickly than inflation despite unemployment falling to its lowest rate since 1975, according to official data published on Tuesday.

Economists said the weaker-than-expected headline pay figure was unlikely to knock the of England off course from raising interest rates next month for only the second time since the global financial crisis.

Sterling weakened as the data showed wages in the three months to February rose by 2.8 percent, unchanged from the growth rate in the three months to January and below a median forecast of 3.0 percent in a poll of economists.

Inflation over the period, as measured by the consumer price index, was around 2.9 percent.

"A lot of the detail in the report suggests the labour market is still tightening," Philip Shaw, an with Investec, said.

The said the unemployment rate unexpectedly fell to 4.2 percent, its lowest since the three months to May 1975.

Central banks in many rich nations have been puzzled by the failure of wages to rise more quickly as unemployment falls, something they link to factors ranging from increased use of technology by firms to growth in the number of insecure jobs.

British households - whose spending is the main of the country's economy - have been hit by the double whammy of slow wage growth and a jump in inflation, due mostly to the fall in the value of the pound after the 2016 Brexit vote.

But Shaw said a pickup in growth in pay excluding bonuses to 2.8 percent from 2.6 percent in the three months to January - in line with the poll and the strongest reading since early 2015 - would give a green light to the BoE to raise rates.

"Certainly there's nothing within the labour market numbers to prevent the from raising interest rates in May," he said.

An ONS said bonus payments in February were lower than a year earlier but it was too soon to draw conclusions about the bonus season as a whole.

OF ENGLAND'S PAY FOCUS

The BoE has said it expects the fall in unemployment to start pushing up pay more quickly, the main reason why it has said it is likely to raise borrowing costs a bit faster than it previously thought.

Despite failing to gain speed in the latest data, the headline total pay growth measure matched its strongest reading since mid-2015.

With unemployment at its lowest level since the 1970s, employers have begun raising pay for staff more quickly, though by less than increases of about 4 percent a year before the financial crisis.

The central said in February that it expected pay growth of 3.0 percent a year by the end of 2018, rising to 3.5 percent by the end of 2020.

Data due on Wednesday is expected to show Britain's consumer price index held at 2.7 percent in March, down from a peak of 3.1 percent in November.

One of the BoE's policymakers, Ian McCafferty, said in a interview last week that he thought pay would grow slightly more quickly than the consensus view among his colleagues.

Based on the CPIH measure of inflation, which takes more housing costs into account than the CPI, pay growth edged ahead of inflation for the first time since the first three months of 2017, the ONS said.

The BoE follows the CPI as its target for inflation.

(Writing by William Schomberg; Editing by Peter Graff)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 17 2018. 15:03 IST
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