Alternative measure suggesting stronger UK pay growth
Simon Ward
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In yesterday’s explanatory letter to the Chancellor, Bank of England Governor Mervyn King claimed that “pay growth has remained moderate”. The official average earnings index (AEI) excluding bonuses rose by 3.8% in the year to April – equal to the average annual growth rate over the last five years.
The alternative average weekly earnings (AWE) series, however, is giving a less benign message. This measure is based on the same underlying data as the official index but uses a different aggregation methodology. Figures released today show earnings excluding bonuses growing at a 4.7% annual rate in April – well above the official measure and the highest rate of increase since August last year.
With the MPC on alert for “second round” inflation effects, the divergence between the two measures creates a policy headache. It is unclear which is the better guide – National Statistics launched a review of the AWE methodology in February, which was due to report in April but has been delayed. The MPC may be right to emphasise the AEI but confusion over current pay trends increases the risk of a policy mistake.
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