UK pay pick-up suggesting tight labour market
Simon Ward
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Today’s UK labour market statistics cast doubt on the MPC majority forecast of a slow recovery in pay growth accompanied by improved productivity performance. Private sector regular earnings rose by 2.3% in the year to October, the largest annual gain since March 2012. Earnings in the latest three months grew by 4.2% annualised from the previous three.
Aggregate hours worked, meanwhile, rose by 0.7% in the three months to October from the previous three, suggesting that a slowdown during the summer was noise rather than indicative of a step-up in underlying productivity growth.
Earnings acceleration is consistent with historical evidence of a lagged relationship with job openings (vacancies), discussed in a post in September. The job openings rate (i.e. vacancies as a percentage of filled and unfilled jobs) rose further in the three months to November, moving closer to its 2008 peak – see chart.
The current commodities-driven plunge in headline CPI inflation is obscuring a pick-up in domestic cost pressures, evidenced by a faster rise in the gross value added (GVA) deflator as well as higher pay growth. Today’s MPC minutes made no mention of the increase in annual GVA inflation to 2.3% in the third quarter, a two-year high – see previous post. Complacent policy-makers may be sowing the seeds of another inflation overshoot.
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