The FINANCIAL — Regular pay for British employees rose at the fastest pace in over six years in the three months to July, adding to pressure on policy makers at the Bank of England to raise interest rates, according to Nasdaq.
Average weekly earnings, excluding bonuses, increased an annual 2.9% during the period, the Office for National Statistics said on September 16. Gains to living standards were even heftier when compared with the cost of living: after inflation, wages grew at the fastest rate in almost 13 years.
The pay boost adds to signs that workers are racking up greater bargaining power, as surveys depict companies increasingly struggling to find good candidates to fill job openings. Employment rose by 42,000 people between May and July, the ONS said, compared with the 114,000 jobs that were created in the three months before. Due to a small uptick in unemployment, the jobless rate remained at 5.5%.
Economists expect the pickup in wages to continue throughout the rest of the 2015, marking the first year since the economic downturn in which British households will see their living standards rise. Pay rises are closely monitored by the Bank of England to make sure inflation will meet its 2% target in the medium term.
According to the records of the last meeting of the BOE’s rate-setting body, the Monetary Policy Committee, officials are slightly divided over how much legroom wages have to keep rising without stoking inflation. MPC member Ian McCafferty argued that a tighter labor market could suggest wages were set to surge even faster than BOE forecasts predict. Mr. McCafferty was the sole member of the panel to vote for a rate rise in September.
However, most BOE policy makers believe productivity growth, which has long been lackluster in Britain, is back on a healthy track, and will allow for more generous gains in pay. Economists underscore wage growth can only be sustained in the medium term if it is matched by a pickup in productivity, which would mean workers are producing more output for each hour of work.
“Employment growth could be increasingly limited by improving labor productivity,” said Howard Archer, analyst at IHS Global Insight, “as many companies look to make greater use of the workers they already have.”
Nevertheless, weaker growth in employment is yet another symptom of the U.K economy growing at a slower pace during the third quarter. Industrial production figures, released last week, showed output falling in July, while business surveys for August were largely disappointing in both the services and manufacturing sectors.
A slowdown in Chinese economic growth has stirred concerns among policy makers around the world, as a dip in demand for factory inputs could be a significant challenge for China’s main trading partners. Britain’s sales to China, however, only make up about 4% of its total exports.