Pay squeeze cuts interest rate pressure

IAN MCCONNELL

ings for employees in Great Britain in the three months to July were up by 2.1 per cent on the same period of last year, both including and excluding bonuses.

This was the same year-on-year rise in nominal earnings as in the three months to June and adrift of the 2.3 per cent increase forecast by economists. It shows the continued weakness of nominal pay settlements, in spite of the surge in inflation. Annual UK CPI inflation was only 0.3 per cent in May last year, just ahead of the UK electorate’s vote to leave the European Union.

The Confederation of British Industry highlighted the importance of “substantive progress” in the UK’s Brexit negotiations with the EU, and swift agreement on transition arrangements, in terms of enabling businesses to boost wages.

Chris Williamson, chief business economist at IHS Markit, said: “With the latest inflation data showing prices rising at an annual rate of 2.9 per cent, households’ real incomes are being increasingly squeezed. Not surprisingly, the pay squeeze is feeding through to lower consumer spending.”

He added: “[The] data…highlight that there’s still no sign of average wage growth picking up despite the low level of unemployment, which provides a strong argument for policymakers to wait until wage growth revives rather than hiking [base rates] early in the expectation that it will do so.

“It may yet be some time before we see pay growth approach anything like worrying levels from a monetary policy perspective.”