For BoE, UK wage rise takes backseat to Brexit

Bloomberg

The fastest wage growth in almost a decade is a sign that inflation pressures are building, but the Bank of England may not act until it gets clarity on Brexit.
Data from the Office for National Statistics on Tuesday showed average earnings excluding bonuses rose 3.1 percent in the three months through August, the most since January 2009.
While that backed up predictions by BOE officials for a long-awaited pickup in pay as unemployment remains at a 43-year-low, economists say Brexit uncertainty means no further increases are expec-ted before Britain leaves the European Union in March.
“The data is obviously encouraging news, but there are bigger issues than this for the BOE, which is Brexit negotiations,” said George Buckley, chief UK economist at Nomura in London. “The data supports the call for a rate hike, but I don’t think they will raise rates before reaching a deal.”
The report comes as Brexit talks remained deadlocked over the issue of the Irish border.
The two sides will hold crunch talks in Brussels this week, with both warning over the possibility of a no-deal outcome.
While the pound held gains after the data, rising 0.4 percent to $1.3199 as of 11:02 a.m. London time, bets on a BOE hike in March remained little changed at around 38 percent. The BOE last raised interest rates in August and said a series of increases will be needed over the next few years to contain inflation.
Tuesday’s data confirmed that wages are now growing faster than prices, providing relief for households squeezed by the inflation surge following the 2016 Brexit vote.
Overall wage growth picked up to 2.7 percent, ahead of the 2.5 percent inflation rate in the period, and the BOE sees a pickup towards 3.5 percent next year.
While wage growth remains below its pre-crisis average, muted productivity means that even a modest pickup could fuel inflation as companies raise prices to protect their margins.
What Our Economists Say “Under normal circumstances, today’s wages data might prompt members of the Bank of England’s Monetary Policy Committee to think seriously about a rate hike at the central bank’s next meeting in November. But, with Brexit on the horizon, the UK is in an unprecedented position. Until the terms of the country’s departure are known, there’s likely to be little appetite to change policy. We expect the next hike in May.”— Dan Hanson, Bloomberg Economics There were some signs of weakness in the latest snapshot of the labor market, with employment falling for the first time since the autumn of last year.
Unemployment declined, but only because of a sharp rise in the number of people counted as inactive, particularly students.