U.K. wage growth rebounds in July, employment growth moderates

The U.K. labor market data came in positive, following a healthy monthly GDP data that was released yesterday. Pay growth rates reversed the slowdown recorded in June. The average weekly earnings rose 2.6 percent 3M/Y. The series excluding bonuses indicated growth of 2.9 percent 3M/Y, with the one-month rate rising above 3 percent year-on-year for the first time in three years.

Against the backdrop of increased activity on the High Street over the summer, regular wages growth accelerated in the wholesaling and retailing category, and they continued rising at more than 5 percent 3M/Y in construction, while public sector wage growth also came in higher than of late, with the government having committed to increasing public sector pay after nearly a decade of austerity in this respect, stated Daiwa Capital Market Research.

Meanwhile, the employment figures released today indicate softer spot. After rising by 42k 3M/3M in the previous month and by nearly 200k3M/3M in Q1, employment moved sideways in the latest three months, to represent the smallest rise since October last year.

However, the softness of job growth might be a reflection of the tightness of the labor market, not least given that the number of vacancies rose again to reach the highest level since records started in 2001.

Nevertheless, health and social care jobs indicted the biggest rise in the number of vacancies, perhaps indicative of an ongoing shift in the U.K.’s economic structure. In all, the figures tally with the BoE’s thinking, after the MPC last month tightened monetary policy based on the assumption that increased domestically generated inflation might counter the diminishing impact of sterling depreciation to keep the headline CPI rate high.

“It appears that labour market tightening might indeed have started putting some additional pressure on wages. And if this trend continues while productivity growth remains subdued, it will be consistent with further monetary policy tightening in the UK, albeit not before immediate Brexit uncertainty has lifted”, added Daiwa Capital Market Research.

At 17:00 GMT the FxWirePro's Hourly Strength Index of British Pound was slightly bullish at 61.2304, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 69.3591. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex