wages_inflation

But why?

Why is wage growth slowing while employment rises and unemployment falls?

The Bank of England monetary policy committee (MPC), which is responsible for setting interest rates, has suggested that the UK equilibrium rate of unemployment is 4.5 per cent, meaning that unemployment can fall to this low level – by historic standards – without sparking off inflation.

But Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics reckons that the data report suggests that the equilibrium unemployment rate could be even lower than this.

Scott Bowman, UK Economist at Capital Economics pointed out that "the rise in employment was driven by self-employed workers and government training jobs rather than employees. "

Then again, and on a more optimistic note Mr Bowman said: "We think that this labour market tightness will result in a rise in nominal average earnings growth over the coming months and, therefore, real wages should avoid significant falls. What’s more, ongoing increases in employment and rock-bottom interest rates will probably support overall household disposable incomes, preventing consumer spending growth from slowing too much this year.”

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