UK labor market remains tight with wage growth accelerating

• The UK labor market remains tight even with the unemployment rate ticking up from a four-decade low to 4.1% in October.
• The UK regular pay (excluding bonuses) accelerated to 3.2% over the year in three months to September, up from a decade high of 3.1% in the previous period.
• Total pay (including bonuses) in the UK accelerated to 3.0% over the year in three months to September, up from 2.8% in the previous period.
• The claimant count rose 20.2K in October, down from a revised 23.4K in the previous month.

The UK labor market remained tight in October even with the number of unemployed people rising 21K in September quarter to some 1.38 million. Compared to a year ago the number of unemployed people in the UK fell by 43K.

The unemployment rate in the UK ticked up to 4.1% in October after dwelling at a four-decade low of 4.0% for three months in a row from June till September this year. 

The UK pay growth accelerated in three months to September period of time with regular pay (excluding bonuses) up 3.2% over the year reaching £493 per week in nominal terms. The regular pay was up 0.9% over the year in real, inflation-adjusted terms.

Total pay (including bonuses) increased in three months to September by 3.0% y/y accelerating to £524 per week in nominal terms, up from 2.8% y/y in the previous period. Total pay growth was the highest since May 2015 and it has increased by 0.8% over the year in a real, inflation-adjusted basis.

The UK wage growth accelerated in the three months to September period confirming the trend of rising wages in the environment of a tight labor market. This labor market condition is expected to further press on inflation, confirming the path of the Bank of England’s gradual path to the Bank rate normalization. 

The Bank of England Governor Mark Carney said at November Inflation Report press conference that “consumer spending is being supported by a tight labor market, with the employment rate and vacancies at record highs and the unemployment rate close to record lows. Regular pay growth has been stronger than the MPC had expected, rising to over 3%.” In the environment of Brexit uncertainty being topic number one at the press conference, Carney confirmed that only gradual and limited Bank rate increases should be expected while indirectly sticking to a-one-rate-hike-a-year policy outlook.

UK regular pay growth January 2006-September 2018

Source: The UK Office for National Statistics