UK wages are rising faster than expected boosting consumer spending

consumer spending

Wages saw faster than expected growth in the three months to July, as they continued to outstrip rising prices. 

Excluding bonuses, wages grew by 2.9%, according to figures from the Office for National Statistics (ONS), well above the 2.4% inflation rate for the three-month period.

Earnings have now outstripped inflation for several months. 

Unemployment continued to fall, dropping by 55,000 to 1.36 million, with the jobless rate at 4%.

The unemployment rate remains at its lowest level for over 40 years. 

The number of people in work rose by 3,000, taking the total employment level to 32.397 million. 

The ONS said the labour market remained “robust” with those in work “still at historically high levels”.

“With the number of people in work little changed, employment growth has weakened,” said the ONS’s head of labour market statistics, David Freeman.

“Meanwhile, earnings have grown faster than prices for several months, especially looking at pay excluding bonuses.”

Andrew Wishart, UK economist at Capital Markets, said the figures indicated that “competition for workers is finally starting to provide greater support to wages”. 

However, he does not expect the rosier picture for wages to prompt an interest rate rise from the Bank of England.

“We still think that the MPC will hold off raising interest rates again until the near-term uncertainty due to the Brexit negotiations is resolved,” he added. 

The Bank of England raised its key interest rate for only the second time in a decade last month. The 0.75% current interest rate is the highest level since March 2009.

The ONS also said job vacancies rose by 14,000 in the period to 833,000 – a record high. 

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said this was “alarmingly high” and “further evidence of persistent skills shortages”. 

“While the number of people in work stands close to historic highs, firms continue to report that attempting to recruit staff with the right skills is an increasingly uphill struggle, which is stifling their ability to grow and boost productivity,” he added.