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Wages grow but no pressure on Bank of England to hike interest rates

by: Paloma Kubiak
  • 15/05/2018
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Estimates reveal average weekly earnings for UK employees in the three months to March rose by 0.4%, adjusted for inflation, but the case for an interest rate rise remains far from certain, according to experts.

This is the second month in a row that wages have grown. The latest figures from the Office for National Statistics (ONS) revealed that in nominal terms (not adjusted for price inflation), weekly earnings increased by 2.9% excluding bonuses. Including bonuses, the figure stood at 2.6%.

As such, the figures comfortably outstrip inflation for March which came in at 2.5%.

In monetary terms, average regular pay (excluding bonuses) for employees in Great Britain was £484 per week before tax and other deductions from pay, up from £470 per week for a year earlier.

Average total pay (including bonuses) for employees in Great Britain was £515 per week before tax and other deductions from pay, up from £503 per week for a year earlier.

GDP growth down

Tom Stevenson, investment director for personal investing at Fidelity International, said: “It has long been suggested that wage growth has been the missing piece of the puzzle in Britain’s long, slow recovery from the financial crisis. It should be the key to unlocking a return to monetary normality.

“But just as this piece has fallen into place, another has fallen down the back of the sofa – economic growth. UK GDP growth slowed markedly in the first quarter of 2018 and, last week, the Bank of England trimmed its growth forecast for the year as a whole.

“With economic growth so fragile, the Old Lady of Threadneedle Street felt it had no choice but to back track on its anticipated rate rise last week.

“The bank will continue to struggle to know when to pull the trigger on a rate rise, as the waters are muddied by continuing real wage growth but slowing general inflation. As it outlined in its Inflation Report ‘any increases in Bank Rate are likely to be at a gradual rate and to a limited extent.”

Ben Brettell, senior economist at Hargreaves Lansdown, added: “Ultimately it looks like we’re back in the ‘Goldilocks’ situation – the economy’s not too hot to stoke domestic inflation and force interest rates higher, and not too cold to induce any panic among policymakers.

“I think we might not see a rate rise for the rest of the year.

“When they do rise, they’ll do so only gradually, and peak at much lower levels than in previous cycles.”

Unemployment down

The statistics also revealed the employment rate between January and March was 75.6%, higher than for a year earlier (74.8%) and the highest since comparable records began in 1971.

ONS data showed there were 32.34 million people in work, 197,000 more than for October to December 2017, and 396,000 more than for a year earlier.

Unemployment over the three months came in at 4.2%, down on the 4.6% a year earlier, but it is still the joint lowest figure since 1975.

In total, there were 1.42 million unemployed people, which is 46,000 fewer than for the three months to December and 116,000 fewer than recorded last year.

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