United Kingdom: Wages rise at decade-high pace in Q2; unemployment rate inches up
The unemployment rate rose to 3.9% in the second quarter, up from 3.8% in the previous rolling quarter and in line with FocusEconomics panelists’ expectations. However, the unemployment rate remains extremely low by historical standards. Employment surged quarter-on-quarter, although this was solely due to greater part-time employment, and the increase was not enough to fully offset the number of people joining the labor market. Moreover, job vacancies continued to fall, suggesting a possible loss of labor market momentum amid acute Brexit uncertainty. Positively, nominal earnings growth excluding bonuses rose from 3.6% to 3.9%—a ten-year high—comfortably outpacing inflation and boosting consumers’ purchasing power.
Looking ahead, the labor market should remain a source of strength, although Brexit uncertainty could keep a lid on hiring in the coming months. Our panelists see the unemployment rate ticking up marginally going forwards but staying low, while nominal wage growth should continue to comfortably outpace inflation, supporting household spending.
Regarding the possible implications for monetary policy, James Smith, an economist at ING, comments:
“UK wage growth has hit another post-crisis high amid ongoing skill shortages in the jobs market. This suggests it may be too early to be talking about Bank of England rate cuts, although as ever, it all depends on Brexit.”