Sterling has weakened following the release of UK labour market data for February. While the unemployment rate fell to 4.2%, nominal weekly earnings (including bonuses) rose only 2.3% year-on-year, below the various measures of consumer price inflation which the ONS publishes. The result is that real weekly earnings were down 0.2% year-on-year in February, despite the apparent tightness of the UK labour market. Indeed the historical relationship between a lower unemployment rate and higher real earnings growth remains weak.
The picture for November 2017-February 2018 (rather than just for February 2018) is only marginally better, with real earnings growth of around 0.1-0.2% year-on-year. The media is indeed seemingly putting a positive spin on earnings data which may not be weak enough for the Bank of England not to hike rates at its 10th May meeting. But the overall message is that wage-led inflationary pressures remain soft which in turn is likely to keep a lid on retail sales, consumer demand and ultimately GDP growth – a trend which if not reversed could certainly see the BoE only hiking rates once this year.
