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UK wage growth climbs more than forecast in tight labour market

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UK wage growth accelerated over the summer amid the lowest jobless rate in the more than four decades.

[LONDON] UK wage growth accelerated over the summer amid the lowest jobless rate in the more than four decades.

Earnings excluding bonuses rose an annual 2.9 per cent in the three months through July, more than the 2.8 per cent economists forecast. The jobless rate held at 4 per cent, the lowest since 1975, the Office for National Statistics said Tuesday.

A tightening labour market prompted the Bank of England to increase interest rates last month to their highest level since 2009.

Muted productivity means that even a modest wage pickup could fuel inflation as companies raise prices to protect their margins. Officials, who are expected to hold fire at their meeting this week, say further rate hikes will be needed.

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The pound extended an advance after the data and was 0.4 per cent higher at US$1.3075 as of 9.34 am in London.

Basic wages are now growing faster than prices in a boon for hard-pressed households squeezed by years of meager pay rises and, more recently, a pound-induced inflation surge. Real wages remain below their levels before the financial crisis.

In July alone, basic wages rose 3.1 per cent from a year earlier, the most since July 2015, and vacancies are at record levels.

There was less positive news on employment, which rose by just 3,000 during the period though the employment rate stayed close to a record high. Unemployment, which fell 55,000, may have risen but for a sharp rise in the inactivity rate.

Overall wage growth quickened to 2.6 percent between May and July and the BOE sees a pickup toward 3.5 per cent next year. The ONS cautioned that subdued wage growth a year earlier may have slightly inflated the latest figures.

The ONS said there only a small impact from pay rises in the National Health Service in July. Public-sector workers are benefitting from the easing of a cap on pay increases in place since 2010.

BLOOMBERG