UK Pay Growth Slows
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- July 17, 2018
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British workers’ pay growth has slowed to its weakest in six months despite record employment, challenging the Bank of England as it considers whether to raise interest rates next month for only the second time since the financial crisis.
Average weekly earnings rose by 2.5 percent on the year in the three months to May, slowing from the previous three month period when they grew by 2.6 percent and the weakest since the three months to November, the Office for National Statistics said on Tuesday.
Pay growth excluding bonuses, which the BoE says sometimes gives a better picture of the underlying trend, slowed by a similar amount, to 2.7 percent. Both readings were in line with the average forecast in a Reuters poll of economists.
There was little immediate market reaction to the data, which economists said was unlikely to dissuade the majority of the BoE’s policymakers from raising rates on Aug. 2 after their next meeting.
Britain’s economy appears to be picking up after a slow first three months of the year, when unusually heavy snow hurt demand, and the central bank worries it is bumping up against the speed limit that would start to push up inflation.
Tuesday’s data showed the unemployment rate remained at its joint-lowest since 1975 at 4.2 percent while the proportion of people in work rose to a record high of 75.7 percent after 137,000 jobs were created over the three months to May.
But economic growth since 2016’s Brexit vote has been weak by historic standards due to high inflation and business uncertainty, and on Monday the International Monetary Fund cut Britain’s growth forecast for 2018 to 1.4 percent.
The House of Commons are set to debate another key bill (on trade) that forms part of the EU withdrawal process. Parliament may support an amendment to keep the UK in the customs union, which would differ from the government’s proposals in its recent White Paper.
BoE Governor Mark Carney and colleagues on the Financial Policy Committee will testify to the House of Commons Treasury Select Committee.
The session is about the BoE’s Financial Stability report released last month. BoE policymakers do not normally talk about the interest rate outlook on these occasions but there may be some comment on the economy’s ability to cope with higher rates. There are also likely to be questions on risks around Brexit.
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