UK pay growth fastest in decade
Exodus of eastern European workers adds to vacancies
Average pay in Britain is rising at the fastest rate in nearly a decade, amid a record fall in the number of eastern European workers before Brexit and business complaints about a shortage of qualified staff.
Average pay in Britain is rising at the fastest rate in nearly a decade, amid a record fall in the number of Eastern European workers before Brexit and business complaints about a shortage of qualified staff.
Wages excluding volatile bonuses rose by an annual 3.2% in the September quarter, the biggest increase since the final quarter of 2008, figures from the Office for National Statistics showed on Tuesday.
But adjusted for inflation, the gains are less impressive.
Pay is still lower in real terms than a decade ago, and the thirdquarter rise of 0.9% was last higher in late 2016. Britain’s economy has lost momentum since the 2016 Brexit vote. The pick-up in wages has not been matched by improving productivity, without which gains in living standards could be eroded by higher inflation.
Year-on-year growth in output per hour slowed to 0.1% in the third quarter from 1.4% the quarter before, Tuesday’s data showed. That is likely to reinforce Bank of England (BoE) concern that faster pay growth will prove inflationary.
“This could set the scene for a BoE rate rise in the coming months, but much will of course depend on the outcome of the Brexit negotiation,” said Nomura economist George Buckley.
The BoE raised rates in August, the second time since the 2008/09 financial crisis. Most economists polled by Reuters think they will increase again within the next six months, assuming Britain leaves the EU smoothly in March.
Britain’s labour market has long wrong-footed the central bank. Unemployment has fallen far further than the BoE once thought likely and employers until recently found a ready reserve of workers — many from Eastern Europe — which kept a lid on pay.
Now there are signs unemployment may have bottomed and the traditional relationship between low unemployment and faster nominal wage growth is reasserting itself. In October, BoE chief economist Andy Haldane said he saw a “new dawn” for pay growth, and earlier in November the central bank nudged up its forecast for 2018 total wage growth.
However, the BoE does not expect pay growth to return to precrisis levels of more than 4% without a marked pick-up in productivity. So far this seems absent, and Haldane said on Friday that Brexit was distracting government and business efforts to improve it.
Unemployment rose unexpectedly to 4.1% in the September quarter from a 43-year low of 4% the previous quarter, as slowing job creation failed to keep pace with rising job-seeker numbers. Moreover, in the year to September there was an exodus of workers from the eight eastern European countries that joined the EU in 2004.
“We already have record numbers of vacancies, and the signs are that these skills shortages will further intensify over the next few months as EU workers no longer find the UK an attractive place to work,” said Tom Hadley, policy director at the Recruitment and Employment Confederation trade association.