UK wage growth unexpectedly slows even as job creation booms

(Reuters) - British workers’ wages rose more slowly in the three months to April despite another surge in job creation, leaving the Bank of England still waiting for clear signs that the economy is ready for higher interest rates.
FILE PHOTO: People look at job listings at the Careers and Jobs Live careers fair at the ExCeL centre in London April 19, 2009. REUTERS/Luke MacGregor
In a second reading in a row to show a loss of momentum in pay, total earnings, including bonuses, rose by an annual 2.5 percent, the Office for National Statistics said, down from growth of 2.6 percent in the three months to March.
Economists polled by Reuters had mostly forecast growth of 2.6 percent, matching the pace of the three months to March.
Central banks in many rich countries have been stumped by the failure of wages to follow their typical pre-crisis pattern of rising quickly as unemployment falls.
Excluding bonuses, growth in earnings fell for the first time in more than a year, rising by 2.8 percent year-on-year against expectations for growth to hold at 2.9 percent in the Reuters poll.
But the number of people in work rose by a larger than forecast 146,000, pushing up sterling briefly.
“It’s a really strong set of employment figures,” Andrew Wishart, an economist at Capital Economics, said. “It looks like that’s set to continue.”
The BoE expects wages to pick up speed gradually over the next three years, a big reason why it says it is likely to raise borrowing costs gradually over the period.
But last month it said it wanted to be sure the economy had recovered from its near-stagnation in an unusually icy early 2018, before pushing ahead with only its second rate hike since before the global financial crisis.
On Monday, data showed British factories had a weak April.
Tuesday’s data showed that in the month of April alone — when employers often give staff their annual pay rise — regular pay was up by 2.5 percent, its weakest increase since November.
However, the unemployment rate held at 4.2 percent in the three months to April, its lowest since 1975, as expected in the Reuters poll.
Households - whose spending is the main driver of Britain’s economy - struggled last year from the double whammy of slow wage growth and a jump in inflation, due in large part to the fall in the value of the pound after the 2016 Brexit vote.
With unemployment so low, employers have generally been raising pay for staff more quickly, albeit still more slowly than increases of about 4 percent a year that were typical before the global financial crisis.
Data due on Wednesday is expected to show British consumer price inflation edged back up to 2.5 percent in May, but remains well below a five-year peak of 3.1 percent set in November.
The BoE said in May that it expected pay growth of 2.75 percent a year by the end of 2018, rising to 3.5 percent by the end of 2020.