Highest employment rate for 40 years, but UK wage growth slows

Wage growth has slowed to 2.5% despite headline numbers for employment.

Article updated: 12 June 2018 12:00pm Author: Helal Miah

  • The Office for National Statistics has released the latest UK labour market report, revealing the highest employment rate since at least 1971
  • Despite signs of encouragement in the job market, wage growth has slowed to 2.5%

After yesterday’s very weak manufacturing and industrial production data, concern has built that the weakness in the first quarter wasn’t just related to the severe weather conditions. This morning’s jobs data therefore has come under extra scrutiny. The good news is that the unemployment rate for April has held steady at 4.2% and the number of jobs created during the month was more than expected, up by 146,000. However, this is less than the 197,000 in March.

Furthermore, the rate of wage growth which recently showed some promise, drifted back in April with the growth in average weekly earnings excluding bonuses down to 2.8% from 2.9%, while pay including bonuses dropped to 2.5% from 2.6%.

The rate of wage growth has been a focal point lately as for some time it was behind the rate of inflation. The turnaround we saw in recent months was celebrated but could this have been temporary and should we begin to think that the weakness in some data recently is deeper than just poor weather related?

Tomorrow’s inflation data will also be closely followed and crucial to the path of future interest rates. The rate of wage growth exceeding inflation earlier this year was a cause for celebration and brought forward the expectations of interest rate rises. However, the data due tomorrow could show that we have had a setback where inflation could exceed wage growth again. This could be partially explained by the hike in the price of oil up to $80 a barrel during May and the delay interest rate increase, which the market until now placed a 50/50 chance on happening during 2018.

For equity investors, we don’t think that too much has changed and still view the asset class as the best place for risk adjusted returns for the medium to long term.

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Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.