U.K. Wages Climb More Than Forecast in Tight Labor Market

(Bloomberg) -- U.K. wage growth accelerated over the summer amid the lowest jobless rate in more than four decades.

Earnings excluding bonuses rose an annual 2.9 percent in the three months through July, more than the 2.8 percent economists forecast. In July alone, basic wages rose 3.1 percent, the most since 2015, and vacancies are at record levels, the Office for National Statistics said Tuesday.

A tightening labor market prompted the Bank of England to increase interest rates last month to their highest level since 2009. In the private sector, three-month pay growth climbed to 3 percent.

Muted productivity means that even a modest wage pickup could fuel inflation as companies raise prices to protect their margins. Officials, who are expected to hold fire at their meeting this week, say further rate hikes will be needed.

The pound was little changed at $1.3037 as of 9:51 a.m. in London.

Wages are now growing faster than prices in a boon for households squeezed by years of meager pay rises and, more recently, a pound-induced inflation surge. Real wages remain below their levels before the financial crisis.

The jobless rate held at 4 percent, the lowest since 1975.

There was less positive news on employment, which rose by just 3,000 despite the economy growing at its fastest pace in almost a year. Unemployment, which fell 55,000, may have risen over the quarter but for a sharp rise in the inactivity rate.

Overall wage growth quickened to 2.6 percent between May and July and the BOE sees a pickup toward 3.5 percent next year. The ONS cautioned that subdued wage growth a year earlier may have slightly inflated the latest figures.

There was only a small impact from pay rises in the National Health Service in July. Public-sector workers are benefiting from the easing of a cap on pay increases in place since 2010.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson, Brian Swint

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