United Kingdom: Employment growth remains robust but wage growth continues to soften

The unemployment rate remained at a multi-decade low of 4.2% in the March-May period, where it has been for four consecutive rolling quarters. This was underpinned by ongoing strong employment growth, particularly for full-time positions: in total, 137,000 jobs were added compared to the December-February period, with the employment rate standing at an all-time high.

Despite the ongoing jobs surge, the nascent recovery in wages seen through the end of 2017 and the beginning of 2018 continued to dissipate in March-May. Nominal earnings growth excluding bonuses dipped to 2.7% from 2.8% in the prior rolling quarter. With inflation coming down, real earnings still continued to rise—albeit at a moribund pace. However, average total pay in real terms was still below the pre-crisis peak reached in 2008.

The Central Bank expects nominal regular pay growth to continue to hover slightly below 3.0% this year. However, as inflation gradually declines, this should see real wage growth tick up, although it will stay sluggish. Public-sector pay—which has been constrained in recent years by austerity measures—is likely to rise slightly as the government lifts its spending straightjacket thanks to an improved fiscal situation.

UK Unemployment Rate Forecast

Our panelists currently expect the unemployment rate to average 4.3% in 2018 and 4.5% in 2019.