UK data released on Tuesday showed wage growth slowing slightly in March to 3.3%, from 3.4% in February. Meanwhile, the unemployment rate dropped from 3.9% to 3.8%, the lowest level now since the mid-1970s. As UK labour becomes more scarce, economics textbooks suggest that wages should be increasing, putting upward pressure on wages. Indeed, in the last few years, UK wage growth has picked up.
However, the Bank of England’s (BoE) preferred indicator of medium-term wage growth (3 month average versus previous 3 month average, annualised) suggests otherwise. The pace at which wages have been accelerating appears to have slowed considerably this year, pointing to softer year-over-year wage growth figures in the coming months. With sterling moving broadly sideways and commodity prices having weakened slightly over recent months, this takes some pressure off the BoE from hiking rates before the next Brexit deadline. While the UK inflation print for April, being released later this week, may post an increase on the March figure in part due to an Easter effect, we continue to expect the UK inflation rate to remain around the BoE’s target over coming quarters.
Year-on-year wage growth should temper in coming months
Source: Office of National Statistics, Allianz Global Investors, 31/01/2001-31/03/2019. AWE refers to Average Weekly Earnings.
