End to Squeeze Nears as U.K. Wages Increase Most Since 2015
Tuesday, 17 April 2018 15:52 WIB | EUROPE |Ekonomi inggris

U.K. wages are rising at their fastest pace in almost three years, raising the prospect of an end to the squeeze on living standards.

Annual pay growth excluding bonuses accelerated to 2.8 percent in the three months through February, the Office for National Statistics said Tuesday. Consumer-price inflation averaged 2.9 percent in the same period and is forecast to fall toward 2 percent this year. 

The figures may reinforce speculation that the Bank of England will raise interest rates again next month, despite the economy being disrupted by bad weather in the first quarter.

Officials fear home-grown inflationary pressures are building as labor shortages leave firms struggling to fill vacancies.

Employment rose to a record high between December and February after the economy added 55,000 jobs, the ONS figures show. The jobless rate fell to 4.2 percent, the lowest since 1975 and below the BOE's estimate of the equilibrium rate.

The prospect of a return to real-income growth is good news for hard-pressed households after more than a year of wages lagging behind prices. Using a measure of inflation that includes owner-occupier housing costs, pay growth overtook inflation between December and February.

Few, however, expect any immediate effect, with consumer spending -- and the economy as a whole -- forecast to see the weakest growth in years in 2018.

Private-sector regular wages rose an annual 2.9 percent in the latest three months, and were up 3 percent in February alone.

In February, the jobless rate fell to an all-time low of 4 percent. Unemployment dropped by 16,000 to 1.42 million in the latest three months and the inactivity rate declined to a record low.

But while a May rate increase is all-but priced in by investors, not everyone is convinced that the labor market is running out of slack. 

A study co-authored by former policy maker David Blanchflower argued this week that there are still a significant number of people seeking more hours, meaning unemployment may have to fall below 3 percent before wage growth picks up any serious traction. 

Source: Bloomberg

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