U.K. jobless rate falls to lowest since 1975, but wage growth remains weak

The U.K. labor market figures for the three months to June that were released on Wednesday left recent trends greatly intact. The jobless rate continued to drift lower, falling to 4.4 percent, a new post-crisis low. It was slightly below the consensus expectations. Such a jobless rate would have historically indicated a tight labor market. There were some indications that this tightness was having some impact on earnings growth.

In all, average weekly pay accelerated to a 2.1 percent annual growth rate, while regular pay also strengthened to 2.1 percent. Still, against a backdrop of an accelerating price inflation the prospect of a further squeeze on a real pay growth continues to be likely in the second half of 2017, noted Lloyds Bank in a research report.

However, for income growth prospects, employment rose further. The numbers employed as of the April-June quarter were 125k higher than in the preceding three months, moderating marginally from 175k in the earlier reporting period. While this implies that a rebound in productivity stays a long way off, it also eases concerns of a demand-led loss of economic momentum against a backdrop of elevated economic uncertainty. But from a policy perspective, the degree to which employment growth continues in future months would be quite relevant to the MPC’s assessment of the economy’s available spare capacity, stated Lloyds Bank.

Still, with inflation likely to accelerate further in the months ahead and the labor market seemingly tight, workers might become more assertive in their wage demands to resist the depletion of their purchasing power. A more rapid rate of wage growth would raise worries for some Bank of England policymakers that higher inflation is becoming embedded in expectations, warranting a tighter policy stance, added Lloyds Bank.

At 18:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -130.881, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -41.9081. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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