United Kingdom wages rise in real terms for first time in a year

19 April, 2018, 02:01 | Author: Barbara Daniel
  • Wage growth has accelerated to a near three year high amid hopes a long squeeze on pay is finally coming to an end

The consumer price index in March was up 2.5% compared to the same month past year, the Office for National Statistics revealed on Wednesday, down from 2.7% the month before, where it was expected to stay, and the third fall since hitting a peak of 3.1% last November.

"The fact that inflation has fallen further means that real wages are likely to have strengthened more than expected, relieving some of the pressure on consumers", noted Paul Hollingsworth, senior United Kingdom economist at Capital Economics research group.

This is good news for our pockets: yesterday we found out that the average wage across the United Kingdom had risen 2.8 per cent, and when the inflation rate is lower than the rate wages are rising, that's nice for us because we can buy more for our money - what's called a boost to "real wages".

Output price inflation slowed to 2.4 percent in March from 2.6 percent in February. When the rate of inflation runs above the rate of wage increases, disposable income falls and consumers may need to "tighten their belts", reining in discretionary spending.

Given yesterday's wage growth data, coupled with today's inflation rate figures, it means the Bank of England is less likely to raise interest rates next month.

While price rises are easing off, wage growth has accelerated.

The pound falls sharply on the news, dropping more than 0.5% against the dollar.

While noting the role of clothing costs to reducing inflation, the economics research firm added that at the same time 'other components of core goods inflation also declined, suggesting that retailers as a whole have largely finished passing on higher import prices to consumers'. Although we expect the BoE to raise its official policy rate by 25bps this year, the timing of this will likely be pushed back until August, given today's inflation print. That figure, coupled with the inflation number, means that wages in the United Kingdom are growing in real terms for the first time since the beginning of 2017.

United Kingdom manufacturers increased the prices they charged by 2.4% compared with 2.6% in February, slightly stronger than the consensus forecast of 2.3% but still marking the weakest rate of increase since November 2016.

He said the level of debt in the economy remains high, as consumer spending was stable even when inflation was high, and this must be the effect of more borrowing.

He said the recent rally in the pound has been a relief for Irish exporters, but whether that relief will be short-lived remains to be seen. Input prices gained 4.2% from a year earlier in March, driven by higher crude oil costs.

In February, the Bank of England had projected inflation to remain close to 3 percent in the first quarter and signaled somewhat earlier- and deeper-than-expected rate hikes. Unemployment, for example, is at its lowest rate since 1975.


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