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UK pay ex-bonuses rises at fastest pace since 2008, jobless rate edges up

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UK pay ex-bonuses rises at fastest pace since 2008, jobless rate edges up
Construction workers work on a Taylor Wimpey housing estate in Aylesbury, Britain, February 7, 2017. REUTERS/Eddie Keogh   -   Copyright  Eddie Keogh(Reuters)
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By David Milliken and Alistair Smout

LONDON (Reuters) – The underlying pay of British workers rose at the fastest pace in nearly a decade during the three months to the end of September, but the unemployment rate inched up for the first time this year, official figures showed on Tuesday.

Average weekly earnings, excluding bonuses, rose by 3.2 percent on the year in the third quarter of 2018, their biggest rise since the fourth quarter of 2008 and gathering pace from a rise of 3.1 percent in the three months to August.

However, the jobless rate picked up to 4.1 percent versus economists’ forecasts in a Reuters poll for it to hold steady at 4.0 percent, its first rise since the final three months of 2017.

There was little immediate market reaction to the data, with most attention focussed on Brexit developments as Prime Minister Theresa May attempts to forge a temporary transitional agreement amongst her ministers and with the European Union.

“The latest look at the UK labour market has delivered some good news for workers … even if the unemployment rate did tick higher,” said David Cheetham, a market analyst at currency brokers XTB.

Last month Bank of England chief economist Andy Haldane hailed a “new dawn” for pay growth, shortly before official figures for the three months to August showed the fastest growth in pay excluding bonuses since January 2009.

This month the BoE nudged up its forecast for total pay growth to 2.75 percent for the fourth quarter of 2018, rising to 3.25 percent by late 2019.

But it does not expect pay growth to return to the average of more than 4 percent seen before the financial crisis, due to persistently weak productivity growth which depresses living standards.

Businesses widely report labour shortages due to the low rate of unemployment and fewer workers arriving from elsewhere in Europe ahead of Brexit.

Tuesday’s figures showed the biggest year-on-year drop in the number of EU nationals working in Britain since records began in 1997, down 5.5 percent over the year, including a 14.9 percent fall in workers from the eastern European countries that joined the EU in 2004.

The central bank views faster pay growth driven by labour shortages, rather than better productivity, as evidence that the economy is close to overheating, and in need of a gradual increase in interest rates.

Adjusted for inflation, British workers are still earning less than they were before the financial crisis.

Over the past year, earnings excluding bonuses have risen by 0.9 percent more than inflation, the ONS said, the biggest increase since the final three months of 2016.

Tuesday’s data showed the economy added 23,000 jobs in the third quarter of 2018, taking the number of people in work to a record 32.409 million, in line with economists’ expectations.

(Reporting by David Milliken and Alistair Smout, editing by Andy Bruce and Janet Lawrence)

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