UK Wage Growth Preview: Acceleration Of Nominal Wages Still Not Enough To Match Inflation In February

The UK labor market is set to deliver key wage growth data on Wednesday, March 21 at 8:30 GMT in London. The unemployment rate is expected to remain unchanged at 4.4 percent in three months ending in January after dwelling at more than four decades low of 4.3 percent during the July-December of last year period. Even with the unemployment ticking up slightly to 4.4 percent last month, the labor market remains very tight in the UK and in the absence of productivity factor remains the sole supporter of the economic growth in the UK during the post-Brexit referendum uncertainty.

The key labor market figure in Wednesday’s release is the nominal weekly earnings growth rate that is expected to accelerate to 2.6 percent over the year in three months to January. This is the market consensus for both average earning growth rate including and excluding bonuses. With average earnings excluding bonuses accelerating from 2.5 percent in three months to December period, the signs of labor market tightness being translated into higher wages are slightly starting to be felt, although nominal wage growth in the UK is still below the inflation meaning that real, inflation-adjusted wages are still negative.

According to the Office for National Statistics, the average regular pay, meaning pay excluding bonuses, reached £481 per week before tax and other deductions from pay in three months to December of last year at this average is expected to rise to £494 in three months to January.

When looking at the average total pay that is including bonuses, the weekly pay for employees in Great Britain is expected to rise to £525 in three months to January.

What matters for the currency market is that the higher the nominal wage growth, the bigger the chances of interest rate hike from the Bank of England, regardless of inflation rate being still way above the inflation target.

Regardless of current wage growth being still way off the Bank of England projections from February Inflation report in which the Bank saw average weekly earning to reach 3.0 percent y/y growth in 2018.

The Bank of England turned hawkish this February, saying that the monetary policy would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than originally anticipated at the time of the November Inflation Report. The hawkish turn of the Bank of England would make the rate increase in May more probable in tandem with nominal wage growth picking up once the transition period deal has been sorted between the EU and the UK with access to single market granted until December 2021 by now.

The Bank of England February Inflation Report wage growth projections