While this moderate wage growth seems like good news for a steady as she goes economy, in reality, it suggests that the underlying situation is more fragile than we thought. In addition, the recent devaluations of the Chinese yuan have, in two fell swoops, changed the global economic outlook completely. It all goes to show how vulnerable the UK is to “events, dear boy, events.” The recent revival by the Bank of England of its oft-repeated warning that interest rates are likely to rise within the next six months now looks to be even more forlorn. As the faltering stock market has indicated, business confidence is in real danger of taking a backward step, and zero – or lower – inflation could be with us for some time. Rising unemployment, rather than indicating higher productivity, could also be a sign of a stumbling economy. It may well depress economic growth – as will the effects of a fragile global economy.
Martin Beck is senior economist at Oxford Economics, says No
The “noisiness” of monthly wage data means that it would be wrong to read too much into one month’s number. Moreover, with inflation averaging zero in the second quarter, growth of 2.4 per cent in real pay in the same period is only slightly below the average rise seen prior to the financial crisis. So the labour market continues to return to normality. Looking forward, conditions are promising for pay growth to run at a decent rate. Productivity is finally staging a recovery, which will provide firms with the resources to pay more. And inflation may head back into negative territory in the next few months on the back of cheaper oil and cuts in energy bills, meaning pay packets will stretch further. Granted, rises in cash pay are likely to be held back by more workers entering the labour market and from the effect of increased automation. But compared with much of the period since 2008, prospects are looking bright for UK workers.