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INSPIRE: UK wage growth hits four-year high of 2.7% in April

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Wage growth in Britain hit a four-year high of 2.7% in April, according to the Office of National Statistics (ONS) figures, delivering a welcome increase to household finances following the fall in inflation this year. But some analysts warned that the jump in real wages, the highest for seven years, would be short-lived if inflation continued to rise over the rest of the year and productivity remained flat.

The ONS said average wages increased from 2.3% in March and 0.7% in April last year to record the strongest rate of growth since August 2011. CPI inflation fell 0.1% in April, the first time that the cost of living had turned negative. Inflation was 1.8% in the same month last year. Unemployment fell by 43,000 to 1.81 million, down 349,000 on a year earlier. The jobless rate stood at 5.5% in the three months to April.

The Employment Minister, Priti Patel, said the figures illustrated how Britain was becoming a more prosperous nation, especially after the rise in the three months to April was fuelled by an increase in full-time work. Service sector pay rose at an annual rate of 2.9%, the highest since early 2009, while financial services pay was up 3.6%. Construction pay growth rose to a post-crisis high of 4.0%.

However John Philpott, Director of The Jobs Economist, is reported as saying that real wage growth would start to run out of steam in the autumn because the combination of low inflation, bumper pay packets and flat productivity was unsustainable.

“With price inflation at some point set to rise back toward 2%, a continuation of real wage growth at the current rate will have to be earned by a return to a more normal rate of productivity growth; if not there will eventually be renewed upward pressure on prices and, ultimately, interest rates.

In recent months, UK workers have benefited from an economy merely mimicking a strong underlying recovery. We should enjoy this while we can. But a genuine sustained recovery will need to be based on higher productivity.”

His downbeat forecast was supported by figures showing manufacturing sector pay growth lagged behind at 1.0%. A less than glowing assessment by households of their personal outlook for the year also showed that under the surface, consumers remain reluctant to accept government assurances that 2015 ranks as a golden age of employment. The Markit household finance index fell from 45.5 in May to 43.8 this month.

Concerns about job security was a key factor weighing on households, with the index respondents personal prospects posting at a 15-month low. Markit said a rebound in economic growth from a lacklustre first three months of the year coupled with strong wage rises would put pressure on the Bank of England’s monetary policy committee (MPC) to raise interest rates.

The likelihood of a rate rise by next spring at the latest was heightened by Bank of England Monetary Policies Committee member Kristin Forbes, who recently said in a speech in London that inflation would soon recover from its negative rate in March of -0.1 to near its 2% target. She suggested that analysis shows that inflation appears to be on track to rebound toward target by early 2016, irrespective of low inflation in Britain’s trading partners.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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