UK wages finally start to outpace inflation

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The unemployment rate in the United Kingdom showed that employers in Britain increased the pace of hiring, with data supporting that more workers were added.

However, despite the higher pace of hiring, there was a clear lack of wage growth. The data suggests that the Bank of England will most likely continue to remain on the side lines amid the slowdown in the economy and slower pace of wage growth.

The UK’s unemployment rate was seen unchanged at 4.2% which marks a 43-year low.

 UK wages finally start to outpace inflation UK Unemployment Rate: 4.2%, April 2018. Source: Tradingeconomics.com
UK Unemployment Rate: 4.2%, April 2018. Source: Tradingeconomics.com

Data released by the UK’s Office for National Statistics showed that employment in the UK increased 197k during the first three months of the year. This was the biggest increase in the pace of hiring and the biggest jump since 2015.

Economists’ polled were expecting to see an increase of 130k.

Further data showed that the annual growth in the average earnings excluding bonuses rose 2.9% in the three months ending May. This follows an increase of 2.8% from February. On inflation adjusted basis, the increase in wage growth showed only a 0.4% increase. This was the first time UK wages finally start to outpace inflation.

Including bonuses, total wages were seen rising at a slower pace of 2.6% in the three months ending March. This was a slower pace compared to the 2.8% increase seen in February. The output per hour was seen falling 0.5% on the quarter in the three months to March.

This comes following a 0.7% increase seen in the previous quarter. It was also the biggest fall since 2015.

However, despite a decade after the financial crisis, the UK’s wages were seen staying stagnant.

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Matt Hughes, senior ONS statistician said: “With employment up again in the three months to March, the rate has hit a new record, with unemployment remaining at its lowest rate since 1975.”

Hughes said that growth in the labor market was continued to be driven by UK nationals with a slight drop in the number of foreign nationals. In terms of total pay, growth was seen to be in line with inflation suggesting that real earnings barely grew.

The number of EU nationals employed in Britain fell 1.2% compared to a year ago which marks the biggest decline in nearly eight years.

The employment rate was seen surging to 75.6% on the year.

The jobs report comes following the BoE’s decision to keep interest rates unchanged just a week ago. Although there were some dissenting votes, majority of the policymakers were of the view that interest rate hikes need to be gradual and especially now given the weak patch of economic data.

The uptick in wages outpacing inflation could however be a positive with the BoE’s policy makers. The UK’s GDP was seen growing just 0.1% in the first three months of the year. Subsequent leading indicators continued to suggest that economic activity might have weakened even in the first two months of the second quarter.

The markets currently estimate that the next BoE rate hike could come in August. However, a lot will depend on how the UK’s economy will perform closer to the month of August. For the moment, officials are likely to stay confident in the improvements in the UK’s labor market.

The shortage in the work force is expected to push wages eventually higher over the period of time.

Consumer prices are expected to moderate and eventually fall to around 2.5% during this year, according to forecasts given by the Bank of England. However, despite the economic indicators, the Brexit theme continues to remain a key game changer when it comes to the Bank of England’s interest rate decision.

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