Investment Clock insights

Wage growth still the economy’s missing ingredient


Ian Kernohan 

17 May 2017

In many ways today's was another strong labour market report, with the employment rate at a record high and the unemployment rate falling to 4.6%, the lowest since 1975.  
The increase in the employment rate is partly due to changes in the State Pension age for women, with fewer women retiring early. Yet again, the missing ingredient in all this is a strong recovery in wage growth. 
Core average earnings, which exclude bonuses, were up by just 2.1% compared with a year earlier. With inflation now above target, real earnings growth has slipped into negative territory.  The Bank of England’s Monetary Policy Committee will need to see a distinct improvement in earnings growth, if their latest forecasts are to prove accurate.

In many ways today's was another strong labour market report, with the employment rate at a record high and the unemployment rate falling to 4.6%, the lowest since 1975.

The increase in the employment rate is partly due to changes in the State Pension age for women, with fewer women retiring early. Yet again, the missing ingredient in all this is a strong recovery in wage growth. 

Core average earnings, which exclude bonuses, were up by just 2.1% compared with a year earlier. With inflation now above target, real earnings growth has slipped into negative territory. The Bank of England’s Monetary Policy Committee will need to see a distinct improvement in earnings growth, if their latest forecasts are to prove accurate.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.