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British pay growth slows, pushing back interest rate hike bets again

[LONDON] Workers' pay in Britain grew at a slower than expected pace in the three months to October, suggesting the Bank of England will take even longer to raise interest rates from the record low in place for nearly seven years.

The pound fell to its lowest level against the dollar in eight days as investors took weak wage data as a sign that the BoE would not be matching an expected US rate hike, which is likely to be announced later on Wednesday, any time soon.

The Office for National Statistics said regular earnings of workers - excluding bonuses - rose by 2.0 per cent in the three months to October, its slowest since the three months to February.

It was weaker than a median forecast of 2.3 per cent in a Reuters poll of economists.

Including bonuses, earnings growth also slowed to 2.4 per cent down from 3.0 per cent in the three months to September, the ONS said.

The slowdown contrasted with strong job creation and a surprise fall in Britain's unemployment rate and added to the mixed signals coming from the labour market that have puzzled BoE Governor Mark Carney and his fellow policymakers. "The economy is robust, jobs growth is strong, but there is no wage inflation," Alan Clarke, an economist at Scotiabank, told clients. "Of the conversations that I have had recently with people at the coal face, one thing stands out. With CPI inflation so close to zero, employers do not feel compelled to raise wages." Dominic Bryant, an economist at BNP Paribas, said the slowdown in wage growth meant the BoE might not start to raise interest rates in May, as he has been predicting.

The BoE said last week that if wages were slowing because near-zero inflation was helping employers to give only small increases, this drag was likely to be short-lived with consumer prices expected to start rising again soon.

Carney has said he would like to see earnings growth moving above 3 per cent a year before he would support a rate hike.

In the month of October alone, regular wages rose by 1.7 per cent, the slowest increase since January.

Investors paid little attention to other, stronger-looking details of Wednesday's data.

Britain's unemployment rate fell to a new seven-year low of 5.2 per cent, the ONS said. Joblessness had been expected to remain at 5.3 per cent, according to the Reuters poll.

The ONS also said the number of people in employment rose by the biggest amount since the three months to February, jumping by 207,000 and taking the employment rate to 73.9 per cent, the highest since records began in 1971.

The number of unemployed people fell by 110,000, the biggest fall since the three months to September of last year.

For most of the period since the financial crisis, average earnings in Britain lagged inflation before the tables turned with wages picking up and inflation falling to around zero.