UK wage growth lags inflation even as jobless rate hits new low

UK weather Met Office chart

Tuesday's wage data adds fuel to the argument that the Bank of England will likely increase interest rates at the next meeting of its Monetary Policy Committee in the first week of May. British households - whose spending is the main driver of the country's economy - have been hit by the double whammy of slow wage growth and a jump in inflation, due mostly to the fall in the value of the pound after the 2016 Brexit vote.

The Office for National Statistics (ONS) also revealed the number of people in work increased between December 2017 and February 2018, while the unemployment rate fell.

Excluding bonuses, wage growth accelerated from 2.6% to 2.8% in the three months to February when compared to the same period a year ago, but overall weekly earnings held steady at 2.8% instead of rising as forecast to 3%. Tuesday's figures showed there were 1.42 million unemployed people in Britain in the three months to February, 16,000 fewer than the previous three-month period, and that the unemployment rate was at 4.2 percent, its lowest since 1975. Despite failing to gain speed in the latest data, the headline total pay growth measure matched its strongest reading since mid-2015. "Pay growth appears to be finally benefiting from the strength of jobs growth", says Ruth Gregory, a United Kingdom economist at Capital Economics. "Markets are now pricing in an 85 percent chance of a rate rise".

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Sterling was flat against the euro.

The Pound-to-Dollar rate traded at its highest level since the Brexit referendum earlier on Tuesday while the Pound-to-Euro rate was closing in on the 1.16 level, which would have put the exchange rate close to a one year high.

Dollar weakness after uncertainty about United States trade policy has also been a contributory factor, traders said.

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Anticipation of a rate hike mounted after the BoE warned in February that it could raise rates further and faster than markets were gave it credit for if the United Kingdom inflation picture evolved in line with its most recent forecasts.

Forecaster are split on whether or not the Bank of England will raise rates from 0.5% to 0.75% in May, but the latest positive economic data seems to make that increase more likely.

United Kingdom inflation data is predicted to show a small slowdown in month-on-month price growth from 0.4% to 0.3%, but an uptick in year-on-year core price growth from 2.4% to 2.5%, while overall price growth is expected to hold steady at 2.7%.

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