UK wages rose more than expected in August - but still fell in real terms

Emma Haslett
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Unemployment remained at its lowest since 1975 (Source: Getty)

The pound edged lower this morning after official data showed real-terms UK wages continued to fall in August, despite a higher-than-expected rise when inflation is stripped out.

Data by the Office for National Statistics (ONS) showed average weekly earnings excluding bonuses rose 2.1 per cent in August, higher than the two per cent expected.

However, in real terms, they fell 0.4 per cent on the year before, the ONS added, thanks to higher inflation. Yesterday data showed it hit three per cent in September, its highest since April 2012.

The news caused the pound to spike against the dollar, before dipping 0.1 per cent to $1.3177. After a brief jump, it was flat against the euro, at €1.1205.

Read more: It’s low productivity that is holding down wages

Meanwhile, unemployment stayed at 4.3 per cent in the three months to August, the joint-lowest since 1975. However, the claimant count rose by more than 1,700 to 804,100 in September, compared with a fall the month before.

Kathleen Brooks, research director at City Index, suggested the Bank of England's monetary policy committee, which is widely expected to raise interest rates in November, now faces a quandary.

"The interest swaps market is expecting an 80 per cent chance of a rate rise next month," she said.

"However, the prospect of raising interest rates when real wages are in negative territory will make this potential hike a tricky one... to justify.

"In fact, we believe Carney’s very loose commitment to a rate hike in the coming months during Tuesday’s testimony to the Treasury Select Committee is reference to the difficult conditions facing the Bank: hike rates because inflation is high and unemployment is low, however, if you hike rates now you could put extra pressure on the consumer and a sharp break on the economy as we move into the end of the year.

"Although the market is convinced about a rate hike next month, there is still an element of doubt and the Bank may yet surprise us."

Read more: What will an interest rate hike mean for house prices?

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