U.K Wage Growth Beats Forecasts But Still Lags Inflation

  • Unemployment rate falls to 4.4%, lowest level since 1975
  • BOE says the worst of consumer squeeze may soon pass
  • The squeeze on U.K. consumers continued in the second quarter, when the fastest inflation in four years ate into workers’ income.

    Basic wages rose an annual 2.1 percent in the three months, lagging behind a currency-driven surge in price growth. That left real incomes down 0.5 percent year-on-year, the Office for National Statistics said on Wednesday.

    Wage growth has failed to sustainably pick up even with unemployment at the lowest in more than 40 years. However the latest data had some positive news for consumers, with employment continuing to rise and earnings stronger in the second quarter than economists had forecast. While the BOE expects the squeeze on U.K. pockets to continue for some months, it has said that inflation is near its peak and this may be as bad as it gets.

    There were 125,000 jobs created in the three months and the unemployment rate fell to 4.4 percent. That’s the lowest since 1975 and below the Bank of England’s equilibrium rate of 4.5 percent.

    In a further sign of labor-market tightness, which should be putting upward pressure on wage inflation, the number of unemployed people per vacancy was at a record low of 1.9.

    The feeble wage figures are weighing on consumer confidence — at its lowest level in a year — and damping demand in British stores.

    With consumer spending accounting for a large part of the economy, there’ve also been broader implications. Growth slowed in the first half of the year, and economists surveyed by Bloomberg see expansion slowing to 1.5 percent this year from 1.8 percent in 2016, and losing even more speed in 2018.

    Total pay including bonuses rose 2.1 percent, the ONS said, also better than forecast. Adjusted for inflation, it fell 0.5 percent, slightly less than recorded the previous month.

    Bloomberg

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    Dean Popplewell

    Dean Popplewell

    Vice-President of Market Analysis at MarketPulse
    Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
    Dean Popplewell