AAA  Sep. 13, 2017 8:06 AM ET
Squeeze on UK households continues as wages grow slowly
By PAN PYLAS, Associated Press THE ASSOCIATED PRESS STATEMENT OF NEWS VALUES AND PRINCIPLES 
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(AP) — In spite of what looks like a buoyant labor market, household incomes in Britain are being squeezed by a combination of weak wage growth and high inflation that is expected to prevent the Bank of England from raising interest rates imminently.

The Office for National Statistics said Wednesday that average weekly earnings growth in Britain was stuck at 2.1 percent in the three months to July when compared to the same period the previous year, with or without bonuses taken into account.

Whatever, if any, rise in pay growth takes place in August, it's clear that inflation is outstripping wages — figures published Tuesday showed that the headline consumer price inflation rate spiked to 2.9 percent in the year to August.

The squeeze may appear curious given that Britain's unemployment fell to 4.3 percent, its lowest level since 1975, as employment increased by 181,000 in the three months to July. That in theory should be pushing wages higher as workers gain bargaining power.

Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said a sharp fall in consumer confidence "suggests that job-to-job moves will remain well below the pre-recession levels required to drive up overall wages gains."

Overall pay growth may get a bit of a boost from the government's decision to abandon a pay cap for public sector workers in England and Wales. The government has limited public sector pay rises to 1 percent since 2010 in an attempt to reduce the government budget deficit in the wake of the global financial crisis.

For now, the squeeze in household income is one of the main reasons why most economists think the Bank of England will keep its benchmark interest rate unchanged at the record low of 0.25 percent on Thursday, even though inflation is markedly above its 2 percent target.

The other considerations expected to stay the hand of a majority on the central bank's nine-member Monetary Policy Committee are uncertainty over Britain's exit from the European Union and the inflation-induced slowdown in consumer spending, both of which are largely behind the country's slowdown in growth this year. So far this year, Britain is the slowest-growing economy among the Group of Seven industrial nations.

"On balance we continue to see the pragmatists holding sway," said Sam Hill, senior U.K. economist at RBC Capital Markets, of the central bank rate-setters. "However, we appreciate that for some members, above-target inflation, and further erosion of labor market slack, will result in their individual policy conclusion being different."

Associated Press
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