LONDON (Reuters) – British workers’ underlying pay growth picked up faster than expected to a rate that has not been exceeded in three years, as businesses found it harder to recruit staff, official figures showed on Tuesday
Average weekly earnings excluding bonuses rose by 2.9 percent on the year in the three months to July, the fastest since March and gathering speed from the previous three month period when they grew by 2.7 percent, the Office for National Statistics said.
Including bonuses, total pay growth picked up to 2.6 percent from 2.4 percent.
Economists polled by Reuters forecast wage growth of 2.8 percent excluding bonuses and 2.4 percent including them. Pay growth excluding bonuses was last higher than 2.9 percent in the three months to July 2015.
“Earnings have grown faster than prices for several months, especially looking at pay excluding bonuses,” ONS statistician David Freeman said.
The Bank of England keeps a close eye on wage growth for signs of inflation pressure, and last week Governor Mark Carney told legislators that nominal pay growth – excluding volatile bonuses – had slowly risen since 2015 without much accompanying improvement in productivity growth.
This raised employers’ labour costs, which were now growing at a rate that pointed to inflation at around 2 percent and required the BoE to raise interest rates at a “limited and gradual” pace, he said.
The BoE has raised interest rates twice in the past year, and after the most recent rate rise last month, Carney said market expectations of a further 25 basis point rate rise at least once a year for the next few years was a reasonable rule of thumb.
Tuesday’s data showed that the economy added just 3,000 jobs in the three months to July, taking the number of people in work to 32.397 million. This was less than the 28,000 forecast by economists in a Reuters poll and the number of job vacancies rose to a fresh record high
The jobless rate held steady at 4.0 percent, its joint-lowest since 1975, as forecast.
“The labour market remains robust, with the number of people working still at historically high levels,” the ONS’s Freeman said.
(Reporting by David Milliken and Jonathan Cable)