United Kingdom: Wage growth shows sign of life in May-July amid tight labor market
In the May-July period the unemployment rate stayed at 4.0%, the joint-lowest rate since 1975 and below the Central Bank’s estimate for the equilibrium unemployment rate of 4.25%. However, employment growth slowed notably, with the economy only adding 3,000 jobs compared to February-April, as a decline in part-time work largely offset more full-time positions.
In May-July, there were signs that the tight labor market and increasing competition for workers are beginning to filter through to wages. Nominal earnings growth excluding bonuses increased to 2.9% (April-June: +2.7% year-on-year), causing real earnings growth to pick up pace. The uptick was a result of faster wage growth in both the public and private sectors. However, despite several consecutive months of annual real wage growth, average total pay in real terms was still slightly below the pre-crisis peak reached in 2008.
Looking ahead, the labor market will remain tight. Coupled with more generous public-sector pay rises, this should gradually support faster wage growth.