The latest set of employment statistics shows that the UK labour market remains in a robust state and that the recent recovery in real pay growth is gathering momentum.
According to data from the Labour Force Survey, the number of people in work rose to a record high of 32.48 million during the three months to October 2018, 79,000 more than in the three months to July and 396,000 higher than a year earlier. And, although the data also revealed a 20,000 rise in the number of people unemployed, the overall unemployment rate was virtually unchanged at 4.1%, considerably down on its year earlier level of 4.3%.
The data also revealed a faster than expected increase in pay growth, with average weekly earnings excluding bonuses rising by an annual rate of 3.3% in the three months to October. This rise was at the top end of economists’ forecasts and represents the highest annual growth rate since November 2008. In real terms, regular pay increased by 1.0% in the three months to October, the highest annual real rate of growth since December 2016.
This latest data suggests that the long period of consistently weak wage growth may now be at an end and this is clearly good news for the household sector. However, stronger wage growth is likely to fuel inflationary pressures and therefore impact on the future path of interest rates.
The BoE previously stated that it will need to gradually tighten monetary policy in order to offset wage-driven rises in inflation. And the BoE’s forecast was for slower wage growth for the end of 2018 than the recent data revealed. Clearly, Brexit uncertainties still dominate interest rate policy, but concerns over the inflationary impact of a strong labour market are likely to come more to the fore during 2019.
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