NIESR Wage Tracker – April 2019

Pay growth stabilises amidst a tight labour market and Brexit uncertainty

Main points

• According to new ONS statistics published this morning, UK average weekly earnings (AWE) expanded by 3.5 per cent including bonuses (3.4 per cent excluding bonuses) in the three months to February compared to the year before (figure 1).
• With CPI inflation at 1.9 per cent in the three months to February, real wages grew at an annual rate of 1.4 per cent over the same period, the fastest pace in 27 months (figure 2).
• Whole economy regular earnings data for February was consistent with our monthly Wage Tracker from March, while public sector regular pay was slightly weaker than we expected.
• Going forward, our monthly Wage Tracker suggests that regular pay growth will have reached 3.3 per cent in the first quarter of this year and will stabilise at 3.4 per cent in the second quarter (figure 3). With CPI inflation stabilising at around 2 per cent, this points to annual regular real pay growth of around 1½ per cent in the first half of 2019.
• With productivity growth remaining weak, the increase in pay is adding to employers’ unit labour costs and hence domestic inflationary pressure.

Arno Hantzsche, senior economist at NIESR, said “Nominal wage growth appears to be stabilising at around 3½ per cent amidst a tight labour market and prolonged Brexit uncertainty. Yet real wages remain lower than before the 2008-9 financial crisis. With productivity growth continuing to be weak, nominal wage growth risks adding to inflationary pressures in the economy.”

Please find the full commentary in attachment.