The pound has sunk back below $1.33 after disappointing UK wage growth

 
Emma Haslett
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Nurses Protest The Wage Cap Outside Downing Street
The government scrapped the public sector pay cap for some roles this week (Source: Getty)

Sterling fell off a year-high against the dollar this morning after official wage data suggested consumers face a long, expensive winter.

Having traded above $1.33 for most of the morning, the pound dropped to $1.3287 after data published by the Office for National Statistics (ONS) showed wage growth including bonuses stuck at 2.1 per cent in the three months to August, the same as the month before.

That was lower than the 2.3 per cent analysts had expected, and well below the rate of inflation. Official data showed yesterday that prices had risen 2.9 per cent in August, after a rise of 2.6 per cent in July.

Meanwhile, adjusted for inflation, average weekly earnings both including and excluding bonuses fell 0.4 per cent in the three months to July, the ONS added today.

For analysts, all eyes were on tomorrow's Bank of England interest rate decision. Strong inflation should provide encouragement to hike rates - but low wage growth means any interest rate rise could seriously harm consumers' spending power.

"The UK wage growth data was as bad as it can get," pointed out Naeem Aslam, chief market analyst at Think Markets UK.

"[Currency] traders have decided to shave their profit which is the most sensible trade because the Bank of England will only choke the consumer if they increase the interest rate by looking at the inflation."

However, Ed Monk, associated director for personal investing at Fidelity International, said now may be crunch time for the Bank's policymakers.

“Lagging wages makes it more likely the Bank of England will look through rising inflation when it decides on interest rates this week. Prices are rising above target, which creates the case for raising rates, but today’s wage data suggests all is still not right in the economy."

There was better news for the unemployment rate: it edged down to 4.3 per cent, the lowest since 1975, while the claimant count fell by 2,800.

Public sector pay cap

Despite the bad news, the UK's long-term wage growth should be boosted after the government scrapped the one per cent cap on public sector pay rises yesterday, awarding police officers a two per cent rise, while prison officers were given an extra 1.7 per cent.

However, trade unions complained the rise wasn't enough, with the Prison Officers' Association saying the rise must be closer to five per cent, while the Police Federation wanted a 2.8 per cent increase.

Read more: New hire wages rise fastest in nearly two years as labour market tightens

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