UK wage growth outpaces inflation

UK wage growth outpaces inflation

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Wages grew 2.6% in the three months to December, faster than the rate of inflation, figures show.

However, the rate of wage growth slowed down, leading analysts to suggest households could face a “squeeze” on spending later this year.

The Office for National Statistics (ONS) data also indicated the jobless rate held steady at an 11-year low of 4.8% during the period.

UK unemployment fell by 7,000 to 1.6 million people, it said.

Other ONS figures indicated that the number of non-UK nationals working in the UK increased by 233,000 to 3.48 million compared with the same period a year ago.

Household squeeze

“The unemployment rate is now at its lowest in over a decade, but wage growth remains subdued by historical standards,” the ONS said in its commentary.

Wage growth slowed from the 2.8% rate seen in the three months to November.

That still outpaced the rise in household prices, but the gap between them narrowed. Annual inflation as measured by the Consumer Prices Index (CPI) reached 1.8% last month, up from a rate of 1.6% in December.

“We expect real household incomes to be squeezed this year,” said Ian Kernohan, an economist at Royal London Asset Management.

Ben Brettell, senior economist at Hargreaves Lansdown, agreed: “With inflation forecast to hit 2.8% early next year, a deceleration in pay growth could see real wages fall at some stage.”

Record employment

However, Mr Brettell added that the UK jobs market had remained resilient, despite warnings it would be hit by the Brexit vote.

“The UK labour market continues to confound the doom-mongers with its resilience to the Brexit shock,” he said.

The employment rate edged higher to 74.6%, which was a record high, according to the ONS data.

“Continued moderate growth in employment has led to a new high in the total employment rate, while the rate for women has reached 70% for the first time on record,” said ONS senior statistician David Freeman.

“Overall, the labour market appears to be edging towards full capacity,” he added.

‘Treat with caution’

There was a small rise in the number of workers born outside the European Union, but a small drop in the number of workers born in other EU countries.

Mr Freeman said those figures “should be treated with caution”, however, because they were not adjusted for seasonal changes.

The job figures are based on the Labour Force Survey in which the ONS talks to about 40,000 households, or 100,000 individuals, every three months.

As it is a survey, the results are estimates and have a margin of error.

For example, the ONS is 95% confident that its estimate of a fall in unemployment of 7,000 is correct to within 80,000, so the drop is described as not being statistically significant.

Source: BBC – UK News

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