U.K. unemployment fell in the three months through October and basic pay grew faster than inflation for the first time since 2009, signaling that the six-year squeeze on household budgets may be over.
Wages (UKAWXTOM) excluding bonuses grew 1.6 percent from a year earlier, up from 1.2 percent in the third quarter, the Office for National Statistics said in London today. Unemployment based on International Labor Organization methods declined 63,000 to 1.96 million. It left the jobless rate at 6 percent, the lowest since 2008.
Concern that pay pressure may build has prompted two Bank of England policy makers to push for an increase in the benchmark interest rate from a record-low 0.5 percent in recent months. The majority said this month a “promising” pickup in wage growth wasn’t enough to raise concerns about the outlook for medium-term inflation, minutes of the latest Monetary Policy Committee meeting published today show.
“This is great news for consumer spending and highlights upside risks to
growth next year,” saidAlan Clarke, an economist at Scotiabank in London. “The gain in real incomes is going to get bigger and bigger from here.”
The pound fell 0.2 percent against the dollar from yesterday and traded at $1.5720 as of 11.47 a.m. London time. The 10-year gilt yield climbed 1 basis point to 1.79 percent.
The number of people in work rose 115,000 to a record 30.8 million between August and October. Jobless claims fell for the 25th month in a row in November, the longest stretch since 1998. They declined 26,900, more than the 20,000 forecast, cutting the claimant-count rate to 2.7 percent.
Pay Pickup
While the drop in ILO unemployment was the smallest since the third quarter of last year, the prospect of a continued decline was raised as the jobless rate for October fell to 5.9 percent from 6.1 percent in September.Britain has seen the biggest drop in real incomes since Victorian times, according to the Labour opposition, with inflation outstripping wage growth in almost every month since mid-2008.
The 1.6 percent increase in basic pay in the latest period was the most in two years and compared with inflation of 1.3 percent in October. Total pay growth accelerated to 1.4 percent from 1 percent, marking the first inflation-adjusted increase since March.
A drop in the inflation rate to 1 percent in November led by lower oil prices suggests the boost to earnings is set to continue.
‘Important Development’
In October alone, annual pay growth was 1.8 percent including and excluding bonuses. In the private sector, it accelerated to 2.2 percent, while basic earnings growth climbed to 2.3 percent.Real wage growth is an “important development” for the U.K., James Sproule, chief economist at the Institute of Directors, said in a statement. “Coupled with low inflation and strong employment, faster and larger pay rises will help many more people begin to feel the benefits of the recovery.”
Minutes of the Dec. 3-4 Monetary Policy Committee meeting published today showed that for the majority, pay growth was only in line with productivity growth, and further increases would be needed “to be consistent” with meeting the 2 percent inflation goal. Officials said consumer price-gains may dip below 1 percent this month.
Martin Weale andIan McCafferty remained the only two of the nine-member panel voting for a rate increase. They said officials should look through the current bout of low inflation and that a move needed to happen now in order to keep rate increases to a gradual pace.
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