Wages grew at their fastest rate in more than two years in January, making it more likely that the Bank of England will put up interest rates again in the near future.
The Office for National Statistics (ONS) reported that total average weekly earnings in the three months to January were up 2.8 per cent year-on-year, the fastest rate of growth registered since September 2015.
City of London analysts had pencilled in a rise of 2.6 per cent and sterling jumped to $1.4062 in the wake of the release, up 0.47 per cent on the day, as traders shifted their bets on the timing of the next increase in rates from the Bank of England.
“The Bank of England will be using [the wage data] as further signs that domestic price pressures may be coming and therefore a May hike could be necessary,” said Jeremy Cook of the foreign exchange firm, WorldFirst.
Fastest rise since 2015
Consumer price inflation was 3 per cent in January, meaning real wages still fell in that month.
But the ONS reported on Tuesday that inflation fell back to 2.7 per cent in February, raising the prospect of real wages growing again relatively soon.
Inflation spiked above 3 per cent in 2017 due to the slump in the value of the pound in the wake of the June 2016 Brexit vote, pushing up import costs.
“January’s labour market figures provided clearer signs of a revival in earnings growth, suggesting that it won’t be long before we start to see sustained rises in real pay,” said Ruth Gregory of Capital Economics.
But while the data suggests the UK’s real pay squeeze is coming to an end, the level of average real wages still remains lower than it was before the 2008 financial crisis.
“While it’s a relief that pay packets are no longer shrinking, the outlook for anaemic pay growth remains a huge living standards concern,” said Stephen Clarke of the Resolution Foundation think tank.
“Average pay is still lower than it was a decade ago, and an entire generation of young workers are still yet to experience the 3-4 per cent pay rises that were once the norm.”
The data shows that private sector pay growth is now outpacing public sector pay, where ministers have been keeping a tight lid on annual increases since 2010.
However, a new deal between unions and employers, being put to staff on Wednesday, is expected to give most NHS workers a 6.5 per cent increase over the next three years.
The ONS also reported that total numbers of people in the UK in employment rose by 168,000 in the quarter to January, taking the total employment rate back up to a record high of 75.3 per cent.
The numbers in unemployment also rose by 24,000 over the period, although this left the headline jobless rate unchanged from the previous quarter at 4.3 per cent, the lowest since 1975.
Meanwhile, the ONS said that public borrowing in February was £1.34bn, slightly larger than the £1.1bn City analysts had expected. At last week’s Spring Statement the Office for Budget Responsibility estimated that full-year borrowing 2017/18 would come in at £45.2bn, around £5bn lower than its previous forecast.