A measure of private sector pay incorporating a 12-month smoothing of bonuses rose by more than consumer prices in the year to December, suggesting that real wage growth is resuming earlier than expected.

Private sector regular weekly earnings rose by 1.5% in the year to December, below CPI inflation of 2.0% in that month. Bonuses, however, increased by 8.7% in the 12 months to December from a year before. A measure of total pay calculated by adding regular earnings and a 12-month moving average of bonuses, therefore, rose by an annual 2.1% in December. This pay growth measure was last above CPI inflation in June 2008 – see chart.

Whole-economy growth, i.e. incorporating public sector workers, is still below inflation at 1.7% in December but the gap is the smallest since 2008.

Most aspects of today’s labour market report were strong. The labour force survey unemployment measure ticked up from 7.1% to 7.2% but a continued rapid decline in the claimant count signals that the break in the downward trend will prove temporary. Vacancies, meanwhile, rose further – the vacancy rate (i.e. the stock of unfilled vacancies expressed as a percentage of employee jobs) is now 2.1% versus a post-1995 average of 2.0%, casting doubt on the Bank of England’s claim of still-significant labour market slack.