The latest monthly unemployment report for the UK contained good news. While the unemployment rate remained steady at 6%, employment rose by another 112,000 jobs in the three months to September and the level of job vacancies has almost returned to the pre-recession peak.
Average weekly earnings growth (excluding bonuses) increased to a three-month average annual rate of 1.3% in September, up from 0.9% in August. Wage growth has thus eclipsed inflation for the first time in five years.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The central bank now expects the UK economy to grow by 3.5% this year, followed by 2.9% in 2015, down from a forecast 3.1% in August.
What the commentators said
For years now, the recovery has had no impact on people's pay packets, leaving them worse off in inflation-adjusted terms. So it's "a relief that we're finally seeing real wage growth", said Craig Erlam of Alpari UK. It appears employers are now being forced to up pay packets as opportunities in the job market increase and the number of qualified applicants dwindles.
In a consumer-driven economy household spending accounts for around 60% of GDP real wage growth "was always going to be essential" if the strong economic recovery is to endure.
However, eurozone woes and deflationary jitters are "dampening the growth trajectory and inflation expectations", noted Regina Borromeo of fund manager Brandywine. And weak inflation, high debt levels and the ongoing fiscal squeeze all mean that once interest rates begin to rise in late 2015, they will rise only very slowly, said Capital Economics.
Even in two years' time, the Bank of England base rate will have climbed by only 1.5% from its current record low of 0.5%, reckonedthe consultancy.
Perhaps, said Guy Foster of Brewin Dolphin. But the doveish consensus notwithstanding, there's a chance the data could force the Bank of England to tighten earlier.
"Nestled away" in the report is a chart showing that wage survey data point to a faster rebound in wages than official pay data imply. It may not be too long before the bank starts fretting about "falling behind the rate hike curve".
-
Millions at risk of 'unnecessary' tax bill – how to shield your savingsMillions of Brits could be taxed on their savings interest this year as their savings interest exceeds the personal savings allowance. Are you at risk?
-
Savers will have to wait as long as 48 years to build a £1m cash ISA pot if allowance is cutChancellor Rachel Reeves is rumoured to be planning a cut to the cash ISA allowance in the Autumn Budget, making it harder for savers to build wealth. Will you still be able to build a £1 million cash ISA pot?
