Low Productivity Hurts UK Wage Growth

The UK’s employment statistics are unambiguously encouraging. Wednesday’s official figures showed employment rose and unemployment fell, strengthening trends in place over the past couple of years. Perhaps more significantly, rising nominal pay and zero inflation pushed real wage growth to its highest level since late 2007, driven by the private sector and the financial, retail and hospitality industries in particular. For a brief moment, it felt like the pay boom we’ve been waiting so long for may finally have arrived.

Not so fast. The Bank of England’s quarterly Inflation Report, published an hour after the Office for National Statistics data, gave the opposite message, downgrading nominal pay forecasts and increasing inflation expectations very slightly. As a result its real wage growth projection for the end of 2015 has fallen from 3% (above the pre-crisis trend rate of 2%) to 1.9% (very slightly below trend).

Many, including the Resolution Foundation, thought the Bank’s previous forecast overly optimistic, so some downward revision might have been expected. But the new outlook implies that any above-trend rebound in wages will have petered out by the end of this year. Understanding what’s prompted the Bank’s newfound caution provides a good sense of the obstacles in the way of our nascent wages boom.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza