Business World

Friday 19 January 2018

British pay growth slows to record low despite falling unemployment

Bank of England governor Mark Carney
Bank of England governor Mark Carney

William Schomberg

British workers' earnings grew at the slowest rate on record in the three months to May, one gauge showed, despite falling unemployment.

That will give the Bank of England, and governor Mark Carney pause for thought as it prepares to start raising interest rates.

Official data just released showed earnings excluding bonuses rose by an annual 0.7pc in the three months through May.

That was less than half the rate of inflation and the slowest growth in regular pay since records began in 2001, taking some of the shine off the economic recovery which Britain's ruling Conservative Party is hoping will help deliver success in next year's national elections.

British government bond prices briefly rose and sterling fell on the weak earnings numbers, which could ease pressure on the BoE to raise interest rates later this year.

"With few signs that the labour market is a source of inflationary pressure, there remains no pressing need for the Monetary Policy Committee to raise interest rates this year," said Samuel Tombs, an economist at consultancy Capital Economics. Britain's economy has been recovering fast for more than a year, raising questions about the need for continued stimulus. The Office for National Statistics (ONS) said yesterday that the jobless rate fell to 6.5pc from March to May from 6.6pc a month earlier, down sharply from 7.8pc in the same period last year.

The unemployment rate, which matched economists' forecasts in a Reuters poll, was the lowest since the October-December period of 2008 - when the global financial crisis 
was snowballing.

But the weak earnings figures underscored the BoE's view that the recovery can continue without risking a big pickup in price pressures.


In the three months through May, total pay including bonuses rose a yearly 0.3pc, the weakest growth in five years.

That was below a forecast of 0.5pc in the Reuters poll and down from a yearly rise of 0.8pc in the three months to April.

The Bank is forecasting 2.5pc wage growth this year, up from 1.25pc for 2013 as a whole but still well below a pre-crisis average of 4.5pc.

An ONS official said May's total earnings growth was still affected by comparisons with the same month last year, when many companies made delayed payments of bonuses to help their employees benefit from an earlier cut in income tax.

The effect of the rush of delayed bonuses also impacted April's earnings readings.

In the month of May alone, total pay rose by 0.4pc, up from a fall of 1.5pc in April, the ONS said.

But excluding bonuses, pay rose by an annual 0.6pc in May alone. The Conservative Party is highlighting the fall in unemployment as it tries to win voters ahead of the 2015 elections. The Labour party is focusing on what it calls Britain's cost of living crisis.

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