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Wage growth beats expectations

Written by: Paloma Kubiak
Earnings for British workers in the three months to July defied expectations, while unemployment levels continued to drop.

The Office for National Statistics (ONS) estimated that average weekly pay in nominal terms (not adjusted for inflation) was up 2.6% including bonuses, and 2.9% excluding bonuses in the three months to July compared to a year earlier.

This is up on the 2.4% and 2.7% reported last month.

When adjusted for inflation, the figures came in at 0.2% and 0.5% respectively.

Tom Stevenson, investment director for personal investing at Fidelity International, said despite the rise, consumers shouldn’t get too excited.

He said: “The ONS thinks there’s an element of catch-up after a weak reading a year ago. Also, with the latest CPI reading showing inflation currently running at 2.5%, household incomes in the UK are barely keeping up with price rises. The Bank of England expects a further rise in wage growth over the next year but with a huge amount of uncertainty around the Brexit negotiations, there are risks to that optimistic outlook.

“With banks reluctant to pass on the recent rate hike to savers, and income growth remaining subdued, cash continues to remain trash. Even if the banks do start nudging up interest rates on their savings account, it’s likely to be years before interest rates catch up with inflation.”

Unemployed numbers decline

While the wage growth figures show positive signs, the number of people in work was little changed between February to April and May to July 2018.

There were 32.4 million people in work – an extra 261,000 from a year earlier. The employment rate for the three month period stood at 75.5%, falling back from the 75.6% reported last month.

The ONS reported there were 1.36 million unemployed people, 55,000 fewer than in the three months to April, and 95,000 less than in the year before. As such, the unemployment rate came in at 4%. It hasn’t been lower since December 1974 to February 1975.

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