A first UK interest rate rise since the financial crash appears to be even further away after official figures showed that wages growth last year dipped to 1.9%.
Wages growth, which is watched carefully by the Bank of England for signs of inflation, lost momentum in December from a high of 3.3% last summer as the global slowdown in trade and turmoil on world stock markets hit the previously buoyant UK economy.
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The unemployment rate also disappointed the City after it failed to fall from 5.1% to 5% as expected following a 60,000 drop to 1.69 million unemployed people between October and December compared with the previous three months.
Until the start of the new year policymakers at the central bank were expected to raise rates by the summer or autumn at the latest, but a delay is now likely, until at least the spring of 2017.
Striking a more optimistic note, the Office for National Statistics figures published on Wednesday showed there was an increase in the number of people in work to a record high of 31.42 million and that wage growth excluding bonuses rose slightly to 2% from 1.9%.
UK unemployment rate UK unemployment rate.Howard Archer, chief economist at IHS Global Insight, said the slowdown could be seen in the increase in employment by 205,000 in the three months to December, much less than the 267,000 gain in the three months to November.
He said: “While the jobs data look solid, there are some signs that employment growth could be starting to lose momentum. Some easing back in underlying employment growth was likely the consequence of the UK recently finding growth more difficult and companies finding it hard to get the qualified/skilled workers they need.”
Another factor limiting employment growth would come from those companies looking to lift the productivity of their workers in the face of the forthcoming introduction of the “national living wage” from April, he said.
John Philpott, director of The Jobs Economist consultancy, said the rise in employment was split roughly equally between employees and self-employed people, with 88,000 of the rise based on previously economically inactive people entering the labour market.
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“Despite the good news on jobs this suggests deterioration in an already dire underlying productivity performance and in part helps explain why average weekly earnings excluding bonuses are still rising at an annual rate of only 2%.
“For the time being, low consumer price inflation is protecting workers from the consequences of weakness in UK productivity and pay, but we face a rude awakening on jobs and living standards if and when prices start to rise again and/or if economic growth slows sharply.”
Inflation stood at 0.2% in December, before increasing to 0.3% in January, providing a 1.8% percentage point cushion with annual wage rises.
Dennis de Jong, managing director at currency dealer UFX.com, said this gap made him more upbeat about the prospects for employment.
“The unemployment rate remains at its lowest level in almost a decade and wage growth, excluding bonuses, has ticked up.
Inflation and earnings graph Inflation and earnings graph“Chancellor George Osborne will be hoping that the introduction of the national living wage in April will see pay increase and help inflation rise further.”
Osborne said: “In the face of significant turbulence in the global economy, it is encouraging that more people than ever have the security of a job and a rising pay packet.
“With a record number of people in work and unemployment and youth unemployment reaching 10-year lows, this is further evidence of the need to stick to the government’s long-term plan to deliver economic security against the cocktail of risks affecting the world.”
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