NIESR Wage Tracker – May 2019

Nominal pay growth dips temporarily but is expected to stabilise at around 3½ per cent in the second quarter of 2019

Main points

• According to new ONS statistics published this morning, UK average weekly earnings (AWE) expanded by 3.2 per cent including bonuses (3.3 per cent excluding bonuses) in the three months to March compared to the same period a year earlier (figure 1).
• With CPI inflation at 1.9 per cent in the three months to March, real wages grew at an annual rate of 1.3 per cent over the same period, less than in January and February (figure 2).
• Whole economy regular earnings data for March was nearly identical to what our monthly Wage Tracker suggested in April. Total pay data was a little weaker than forecast due to a decline in volatile private sector bonus payments.
• Going forward, our monthly Wage Tracker suggests that regular pay growth will stabilise at 3½ per cent in the second quarter of this year (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.
• Our forecast for the year as a whole, published on 25 April and conditioned on a soft Brexit, sees earnings growth stabilise at just above 3½ per cent in 2019 and 2020. With productivity growth remaining weak, the increase in pay is adding to employers’ unit labour costs but lower import price growth is expected to stave off overall inflationary pressure.

Arno Hantzsche, senior economist at NIESR, said “While in the first quarter of this year, nominal wage growth of 3.2 per cent was robust, we don’t expect it to rise substantially above 3½ per cent in the near term. Together with weaker import prices, this suggests that inflationary pressure is kept at bay but also means that real pay is unlikely to improve considerably.”

Please find the full commentary in attachment.