UK wages rise most since 2015 as end to squeeze nears

[LONDON] UK wages are rising at their fastest pace in almost three years, raising the prospect of an end to the squeeze on living standards.

Annual pay growth excluding bonuses accelerated to 2.8 per cent in the three months through February, the Office for National Statistics said Tuesday. Inflation averaged 2.9 per cent in the same period and is forecast to fall toward 2 per cent this year.

The return of real-income growth will be good news for hard-pressed households after more than a year of wages lagging behind prices. That suppressed consumer spending in 2017, holding back overall economic growth.

The wage figures may reinforce speculation that the Bank of England will raise interest rates again next month, despite the economy being disrupted by bad weather in the first quarter. Officials fear home-grown inflationary pressures are building as labor shortages leave firms struggling to fill vacancies.

R Employment rose to a record high between December and February after the economy added 55,000 jobs, the ONS figures showed. The jobless rate fell to 4.2 per cent, the lowest since 1975 and below the BOE's estimate of the equilibrium rate.

The pound fell slightly after the data were released as wage growth including bonuses fell short of expectations, holding at 2.8 per cent. Earlier, the pound touched its highest level against the dollar since the UK voted to leave the European Union. It traded at US$1.4329 as of 10 am in London.

Sterling's 14 per cent gain over the past year has helped to suppress inflation, reversing some of the impact of the currency's decline in 2016. Using a measure of inflation that includes owner-occupier housing costs, pay growth actually overtook inflation between December and February.

Few, however, expect any immediate effect on spending, with consumer activity - and the economy as a whole - forecast to see the weakest growth in years in 2018.

In February, the jobless rate fell to an all-time low of 4 per cent private-sector regular wage growth hit 3 per cent. The inactivity rate also declined to a record low.

But while a May BOE rate increase is all-but priced in by investors, not everyone is convinced that the labor market is running out of slack.

A study co-authored by former policy maker David Blanchflower argued this week that there are still a significant number of people seeking more hours, meaning unemployment may have to fall below 3 per cent before wage growth picks up any serious traction.

BLOOMBERG