UK real wage growth seen weakening towards its 2003-2008 average

The UK's November labor report indicates continued weakness in wage growth amidst more tightening in the labor market. The jobless rate continued to decline, reaching 5.1%. Meanwhile, a continued drop in employment expectations is seen for the next six months, according to the latest Bank of England Agents' Report. Moreover, the report emphasizes that the companies are experiencing shortages in skills, raising questions regarding the further possible rebound in employment.

A downward trend continues for wage pressures that have eased by 1.0pp in four consecutive months. Companies have gone over other factors to help keep upward wage pressures away, such as lowered working hours and low actual inflation. The latest Bank of England Agents' Report showed that the total labor costs per employee dropped down further for December, while the recent REC report on jobs shows that wage growth slowed to a 26-month low. This considerable easing sees the real wage growth in the UK to weaken further towards its 2003-2008 average.

"If our inflation forecasts are realized (we forecast it to pick up from 0.0% in 2015 to 0.9% in 2016) and core wage growth decelerates further, we could begin to see real wages dip further, eating into consumption and supporting our view that private consumption is set to slow into 2016", says Barclays.