NIESR Wage Tracker – September 2019

Strong earnings data driven by July bonuses and public sector pay but further pick-up unlikely

Figure 1 – Average weekly earnings growth (per cent per annum)

Main points

• According to new ONS statistics published this morning, UK average weekly earnings (AWE) expanded by 3.8 per cent excluding bonuses (4 per cent including bonuses) in the three months to July compared to the year before (figure 1).
• With CPI inflation at 2 per cent in the three months to July, real wages excluding bonuses grew at an annual rate of 1.8 per cent over the same period (2 per cent including bonuses).
• July total earnings data was slightly stronger than we forecast last month due to above-expectation bonus payments, more robust public sector earnings, and back data revisions while data on private sector regular earnings turned out as forecast.
• Going forward, the Wage Tracker indicates that regular pay growth will stabilise at just below 4 per cent in the third quarter of this year, reflecting survey evidence of a softening in hiring activity.
• Based on NIESR Wage Tracker and GDP Tracker information, we estimate unit labour cost growth of around 3½ per cent in the third quarter as economic activity remains lacklustre. There is a risk that firms pass higher production costs on to consumers which could add to inflationary pressures in the economy.

Arno Hantzsche, Principal Economist here at NIESR said: “Today’s labour market data were again strong but more timely signals show that a turning point may soon be reached as Brexit and global uncertainties increasingly weigh on hiring. Whole-economy earnings growth has become more reliant on services sectors whose output continues to be in strong demand and on hiring and pay decisions in the public sector.”

Please find the full commentary in attachment