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Wage growth hit by higher inflation

Wage growth hit by higher inflation
From BBC - June 14, 2017

The amount of money workers are taking home continues to fall as inflation takes its toll, official figures show.

Average earnings fell in real terms by 0.6% in three months to April, compared with the same period last year.

Before inflation, earnings rose by 1.7% excluding bonuses and were up 2.1% including bonuses, according to the Office for National Statistics.

Unemployment fell by 50,000 to 1.53 million in the three months to April - the lowest since records began 1975.

The number of people in work hit a new high of 74.8% - the best since records began in 1971.

But the biggest issue will be the falling wages, especially since the ONS revealed on Tuesday that inflation grew to 2.9% in May.

Samuel Tombs at Pantheon Macroeconomics described the wages figures as "astonishingly weak" and implied that real wages had fallen by 1.5% in April compared with the same month last year - the sharpest fall for three years.

John Hawksworth, chief economist at PwC, said: "With inflation likely to be heading above 3% later this year, the squeeze on real pay growth is now getting serious and is likely to dampen real consumer spending growth for some time to come."

The figures wiped out sterling's gains against the dollar on Wednesday and analysts warned that future growth could be hit.

Analysis

By Kamal Ahmed, Economics Editor

Following traditional economic modelling, high levels of employment should, in ordinary times, lead to higher levels of wage growth.

These are not ordinary times.

The workplace has changed, and high levels of hyper-flexible working have tended to depress some wages.

Also, until recent months, labour supply has been high from, for example, the European Union.

Add to that the UK's chronic productivity problem - many firms are just not very good at investing in improvements that increase levels of wealth creation - and this soft wage growth trend is more understandable.

Particularly when employees are reluctant to ask for increases given the economic uncertainty ahead.

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