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British workers' pay is still rising by less than inflation despite the lowest unemployment rate since 1975, official data showed on Tuesday, but weaker-than-expected wage growth is unlikely to stop interest rates rising next month. Since February, Britain's central bank has homed in on what it sees as an increasingly tight labour market that risks keeping inflation above target, unless interest rates go up faster than it thought at the start of the year.
Tuesday's data showed average weekly earnings in the three months to February were 2.8 percent higher than a year earlier - unchanged from January's rate, a two-and-a-half-year high, but below economists' forecasts of a pick-up to 3 percent. Consumer price inflation was 2.9 percent over the period.
Sterling fell after the data, but few economists thought the figures would stop the majority of Bank of England rate-setters from voting for an increase in rates to 0.75 percent next month. The unemployment rate unexpectedly fell to 4.2 percent, its lowest since the three months to May 1975, while the employment rate for working-age Britons rose to its highest since records began in 1971 at 75.4 percent.
The robust employment data contrast with a more subdued picture for the rest of the economy. British households - whose spending is the main driver of the country's economy - have been hit by the double whammy of slow wage growth and a jump in inflation, due mostly to the fall in the value of the pound after the 2016 Brexit vote.
The International Monetary Fund lifted its growth forecast for Britain this year to 1.6 percent on Tuesday due to stronger overseas demand, but this is below Britain's historic growth rate and that expected for most advanced economies this year. Central banks in many rich nations have been puzzled by the failure of wages to rise more quickly as unemployment falls, something they link to factors ranging from increased use of technology by firms to growth in the number of insecure jobs.

Copyright Reuters, 2018

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