UK wage growth picks up despite slower employment growth
UK wage growth has strengthened to a three-year high but employment increased at a slower rate, official figures revealed on Tuesday, with economists seeing little chance of the Bank of England raising rates again soon.
UK average earnings in the three months to July increased 2.6% compared to the same period last year, up from growth of 2.4% a month ago, the Office of National Statistics said. Economists had expected growth to remain at 2.4%, with the latest CPI reading showing that inflation is currently running at 2.5%.
Excluding bonuses, wage growth accelerated to 2.9% from 2.7% and beating the market's forecast of 2.8%. For the single month of July, pay was up 3.1% on a year ago, a high last seen in July 2015 and the joint highest since 2008.
The ILO unemployment rate remained at 4.0% for the three month period, as expected, though employment increased by just 3,000 to 32.4m over the three months, compared to the previous 42,000 increase. The small increase, which was due to a fall in the employment of women by 28,000 to 15.23m, dragged down annual growth in employment to 0.8% from 1.0%.
In more timely data, the ONS revealed that in August the claimant count increased by 8,700, down from a revised figure of 10,000 for July. The seasonally adjusted claimant count rate increased to 2.6% from 2.5%.
Signs of employment growth slowing and flat underlying pay growth should mean that the MPC does not feel compelled to dampen the recent upturn in wage growth by raising interest rates again soon, said economist Sam Tombs at Pantheon Macroeconomics.
"The jobs data are volatile, but the stagnation in the number of job vacancies, together with the recent deterioration in surveys of employment intentions, suggests that job growth will remain sluggish in the second half of this year. In addition, average hours among full-time employees were down 1.0% year-over-year in July, signalling that labour utilisation is below its potential. The labour market, therefore, is not quite as tight as the very-low unemployment rate suggests."
Andrew Wishart at Capital Economics felt it was unlikely that the recent slowdown in employment will prove permanent.
"Even the most pessimistic leading indicators point to employment growth of 1% y/y. Meanwhile, surveys of wage growth suggest that it will sustain a pace of about 3% y/y over the remainder of the year. Despite today’s increase in wage growth, we still think that the MPC will hold off raising interest rates again until the near-term uncertainty due to the Brexit negotiations is resolved."
Tombs added that earnings were boosted as public sector wage growth jumped to 3.1% from 2.4% as nearly all 1.3m NHS workers received a pay rise of at least 3%. Meanwhile, private sector wages picked up to 3.1% on last year from 1.9%, "but the underlying trend still looks fairly flat", with wage growth in the private sector "likely will struggle to pick up further, given that the job market still has some slack and employees remain less willing than usual to move jobs".
"As a result, the MPC should be able to stick to its plans for only gradual increases in Bank Rate over the coming years."