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UK workers get a real pay increase as Labor market tightens

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Britons got their first real pay increase in more than a year in the first quarter as wage growth overtook the rate of inflation.

[LONDON] Britons got their first real pay increase in more than a year in the first quarter as wage growth overtook the rate of inflation.

Average earnings excluding bonuses rose 2.9 per cent from a year earlier, the fastest pace since August 2015, the Office for National Statistics said Tuesday. Consumer-price inflation averaged 2.7 per cent in the same period and the rate is expected to slow further as the effect of the pound’s 2016 losses fade.

The return of real purchasing power is good news for consumers after a year of falling living standards but it may suggest that home-grown price pressures are starting to build, with the Bank of England assessing the economy now has little slack left.

Officials, who opted to hold interest rates last week after a weather-blighted first quarter and a bigger-than-expected fall in inflation, could move in August if growth bounces back as expected, according to Bloomberg economist Dan Hanson.

Skill shortages mean firms are having to boost wages to fill jobs, and the latest figures underscored the buoyancy of the labor market. The employment rate reached a record-high 75.6 per cent after the economy added a larger-than-forecast 197,000 jobs between January and March. Unemployment held at a 43-year low of 4.2 per cent and inactivity fell to the lowest rate on record.

Total earnings growth slowed to 2.6 per cent after a big increase in bonus payments in December fell out of the calculation. Excluding bonuses, private-sector pay growth accelerated to 3 per cent, with the figure for March alone reaching 3.1 per cent.

There was less positive news on productivity, as output per hour declined 0.5 per cent following gains averaging 0.9 per cent over the previous two quarters.

While the decline was the result of a possibly temporary slowdown in growth combined with a 0.6 per cent increase in hours worked, the figures may revive concerns about the weakness of productivity over the past decade. Poor productivity - output per hour was up just 1 per cent on the year - means any pickup in wages risks pushing up inflation as firms try to protect their margins.

A 400,000-person surge in employment over the past year was driven by UK nationals, possibly reflecting the sharp decline in net migration since the vote to leave the European Union.

Employment among EU nationals fell 1.2 per cent, the biggest decline since 2010. There was a record 91,000 drop in employment among citizens of the eight EU countries that joined the EU in 2004.

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