Extract from Redwood Financial’s Economic Review July 2019
The latest batch of labour market statistics shows that UK workers’ basic pay is now growing at the fastest rate in nearly 11 years.
According to data from the Labour Force Survey, average weekly earnings, excluding bonuses, rose by an annual rate of 3.6% in the three months to May 2019. This was at the top end of forecasts submitted in a Reuters poll of economists and the largest recorded increase in pay growth since mid-2008.
The data also showed that wages continue to outstrip inflation. Indeed, in real terms, regular pay increased by 1.7% in the March to May period compared with a year earlier; this represents the highest real rate of growth since autumn 2015.
This recent acceleration in wage growth has largely stemmed from two factors that have impacted the data since April. The first relates to pay rises for some NHS staff which has contributed to an overall increase in public sector pay growth to 3.6%, its highest level since June 2010. In addition, the introduction of the new National Living Wage rate and National Minimum Wage rates have boosted wages for lower-paid workers in sectors such as wholesaling, retailing, hotels and restaurants.
Commenting on the figures, Matt Hughes, Deputy Head of Labour Market Statistics at the Office for National Statistics (ONS), said: “The labour market continues to be strong. Regular pay is growing at its fastest for nearly 11 years in cash terms and its quickest for over three years after taking account of inflation.”
This latest pick-up in pay growth will undoubtedly have been noted by policymakers. The Bank of England (BoE) has previously said it expects wage growth to ease back to 3% by the end of this year and these latest figures clearly show wages rising at a rate significantly above that forecast level.