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UK Squeeze Tightens As Wages Grow At Slowest Pace In Two Years

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UK Squeeze Tightens As Wages Grow At Slowest Pace In Two Years

The squeeze on UK households intensified in the three months through April as wage growth lagged further behind inflation.

Average earnings rose 1.7%, the slowest annual pace for more than two years, the Office for National Statistics said on Wednesday. But they fell 0.6% after inflation is taken into account, the largest drop since August 2014. In April alone, they fell 0.7%.

Consumer Confidence

The fall in living standards is already sapping consumer confidence, weighing on an economy that relies on household spending and piling further pressure on Prime Minister Theresa May following the election that cost her Conservative Party its parliamentary majority.

Economists were quick to respond to the numbers, with ING Bank describing the wage number as “shocking” and reiterating its view that the BOE won’t raise interest rates before 2019.

Wages are failing to pick up despite a robust labor market. Unemployment fell 50,000, leaving the jobless rate at a 42-year low of 4.6%, and the number of people in work climbed 109,000 to a record 32 million.


At the same time, inflation is now close to 3% and rising, the result of the plunge in the pound since the Brexit vote a year ago. That’s having a material impact on consumer spending, with figures Thursday forecast to show retail sales fell in May for the second time in three months.

'Challenging Times'

Britain was the worst-performing Group of Seven economy in the first quarter and Bank of England Governor Mark Carney has warned that households face “challenging times” for the rest of the year, as uncertainty ahead of talks on leaving the European Union keep pay subdued.

Some BOE policy makers have expressed concerns about the tightness of the labor market but the weakness of earnings may be enough for most of them to keep interest rates at a record low for now.

Wage growth including bonuses slowed to 2.1% between February and April, leaving inflation-adjusted earnings down 0.4%. Real earnings fell 1.5% in April alone, the most in three years.


The ONS said its earnings data have been revised back to the start of the series in 2000 to better reflect the wages paid at small businesses.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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