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Wage growth dip may quash hopes of August interest rate hike

by: Antonia Di Lorenzo
  • 12/06/2018
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Wage growth dip may quash hopes of August interest rate hike
Employment increase and an unexpected dip in wage growth in the three months to April might weaken the chance of an August interest rate rise from the Bank of England.


Pay grew by 2.8% excluding bonuses, and by 2.5% including bonuses compared with the same period a year earlier. Both numbers were lower than economists had expected.

Meanwhile unemployment held steady at 4.2% – a multi-decade low, and the number of people in work grew by more than forecast. Figures due tomorrow are expected to show inflation ticking up slightly to 2.5%.

Estimates from the Labour Force Survey show the number of people in work increased, the number of unemployed people decreased and the number of people aged from 16 to 64 years not working and not seeking or available to work also fell.

There were 32.39 million people in work, 146,000 more than for November 2017 to January 2018 and 440,000 more than for a year earlier.

There are 1.42 million unemployed people, 115,000 fewer than for a year earlier and at 4.2%, down from 4.6%  a year earlier it is the joint lowest since 1975.


Work and Pensions Minister Esther McVey said: “With the increase in the personal tax allowance, the Government has ensured that people are keeping more of their money before they begin paying tax – meaning more take-home pay, that’s more money in your pocket for you and your family.


Tweets from the Exchequer


However, signals of optimism also have come from the Chancellor of the Exchequer, Philip Hammond, who has tweeted: “Our labour market goes from strength to strength. Employment has reached a new record while regular wages are rising faster than inflation. We’re building an economy that works for everyone by increasing the National Living Wage, boosting pay by £2,000 for the average worker.”

Ben Brettell, senior economist at Hargreaves Lansdown, said: “The Bank views wage growth as a key indicator when considering whether to raise rates. This, in addition to the confirmation that the economy grew by just 0.1% in the first quarter, should put paid to any talk of a summer rate rise.

Policymakers had been thought to be considering raising rates in August, but I still think a rate rise this year looks unlikely. The Bank will almost certainly want confirmation that the first quarter growth figure was just a blip before raising borrowing costs.”

Ed Monk, associate director for personal investing at Fidelity International, said a fuller picture will emerge tomorrow when UK CPI for May is confirmed.

Monks said: “If tomorrow’s data does show inflation has jumped back up, the Bank of England will be left scratching its head on a rate hike in August,” he added.

“The Old Lady of Threadneedle Street will have to balance recent mixed data on the economy with its long-held concern that inflation is about to return with a vengeance. Real wage growth stagnating or tailing off, as well as fears of the UK economy moving back into the slow lane due to ongoing concerns over Brexit, could put back a rate rise even further.”


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