UK earnings shrink at fastest pace in 3 years

British workers’ earnings after inflation contracted at the fastest pace since 2014 in the three months to April, underscoring the growing Brexit squeeze facing many households, newly-published official data shows.

The figures showed the challenge facing Prime Minister Theresa May and her new government, with signs that British households are feeling the strain of rising prices since last year’s vote to leave the EU, weighing on the broader economy.

The data also showed the UK’s unemployment rate in the period between February and April held steady at a more than four-decade low of 4.6%.

Inflation hit an almost four-year high of 2.9% in May, official data showed on Tuesday, stronger than economists had expected.

The impact of the fall in the pound since last year’s Brexit vote made itself felt in the inflation data as the higher cost of foreign holidays helped push up consumer prices.

The UK’s Office for National Statistics (ONS) said yesterday that workers’ total earnings — including bonuses — after taking into account inflation fell by an annual 0.4% in the three months to April after edging up 0.1% in the first quarter.

That marked the biggest real-terms drop since the three months to September 2014.

In nominal terms, wages grew at the slowest pace since February 2016, rising an annual 2.1% in the three months to April and slowing from 2.3% in the first quarter.

Economists taking part in a Reuters poll had expected wage growth of 2.4%.

The ONS said it had revised its data for wages to improve methodology for earnings from small businesses, resulting in lower estimates for wage levels but little change overall to growth rates.

Excluding bonuses, nominal earnings rose by 1.7% year-on-year, the weakest increase since January 2015 and against expectations for a 2% rise.

The Bank of England is watching wage growth closely as it gauges whether the increase in inflation is creating longer-lasting pressure on prices.

It expects wages to rise by 2% this year before picking up in 2018 and 2019.

The British central bank is widely expected to keep interest rates at their record low of 0.25% when it makes its latest policy announcement later today.

The number of people in work in Britain increased by 109,000 in the three months to April, taking the country’s employment rate to 74.8%, a joint record high.

The central bank believes there is little pressure on most employers to raise pay sharply which could feed a more permanent inflation problem.


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