The gap between wages and consumer price inflation is still stubbornly wide, official figures published this morning showed.
Earnings not including bonuses were up 0.7 per cent over the 12 months to the end of July, but inflation is almost a percentage point higher at 1.5 (1.6 during July).
Unemployment data was also out this morning, with the headline rate down to 6.2 per cent. was also out this morning, with the headline rate down to 6.2 per cent.
The rise in wages, up from a 0.2 per cent fall in June, is an improvement but may mean little. According to analysts at Berenberg Economics:
Average earnings rose just 0.6 per cent year on year in July. That was up from -0.2 per cent in June, but the rise means little as it just the result of distortions to bonuses from last years tax changes dropping out of the annual comparison.
The Bank of England has indicated it will consider wage growth as well as inflation when deciding on any interest rate hike. Low inflation is likely to dissuade the Bank from a more hawkish approach, especially as inflation came in at 1.5 per cent, the second consecutive month it has fallen.
Even given the weak growth, a hike may come sooner rather than later. Berenberg again:
The BoE still has time to wait on interest rates given weak wage growth, but not too long as unemployment is falling like a stone. Weak wages signal there has been plenty of slack in the labour market, but the unemployment rate shows that slack is falling quickly.
Looking at July in isolation (the headline unemployment figures are a three month moving average) the single month unemployment rate reached 5.9 per cent.
We expect the first 25 base point rate hike from the BoE in February next year.
At a speech to the Trades Union Congress, Bank of England Governor Mark Carney said that, in effect, low wages were the price of higher employment. Average weekly pay is now £450 across the UK, before tax and other deductions. Including bonuses the figure is £478.
The Bank of England released the minutes of the latest Monetary Policy committee meeting today, which suggested low wage growth could be being affected by changes in workforce composition, with the balance of employment moving towards lower-paid workers with fewer qualifications.
Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around two per cent by the end of the forecast and a further 1.2 million jobs would have been created.
There is upward pressure coming from the housing market, with figures from the ONS showing that the average price rose by 11.7 per cent in the last year and the average price in London moved above £500,000 for the first time.