Pay data, unemployment and some mixed messages ahead of the MPC meeting

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Today we have updated our Pay Bulletin. If you are an EEF member, you can find it here.

In the next release we will have data for April which historically, together with January, is the most important month for settlements. In the meanwhile enjoy our five key takeaways from this week’s releases.

Real pay growth is finally a thing…

According to the ONS data published on Tuesday, the average regular pay was up by 0.2% compared to a year ago and 0.1% when total pay is considered. This reflect an annual nominal regular pay growth of 2.9% in February (2.8% for total pay) with inflation marching towards the 2% Bank of England target. However, expectations were for an even higher growth at 3%.

Our Pay Bulletin showed a 2.4% growth in the three months to February and the result has been also confirmed in March. 

 

…and it’s likely to continue

Yesterday’s ONS release also showed how CPI is slowing down more than forecasters predicted. The reading for March saw prices increasing by 2.5% down from February’s expansion of 2.7%. The effect on prices of the sharp sterling devaluation after the EU referendum is finally coming to an end and this is likely to translate in a positive wage growth in the next few months.

 

Another proof to confirm that it was a very good year for manufacturing

Well, we said it few times… manufacturing had a great 2017 and this can also be detected when looking at bonus pay growth data.

bonuses 

As the graph above shows, manufacturers’ employees enjoyed some hefty bonuses as a reward for their great work in the past year. The trend also continued in the three months to January 2018 whereas February saw a decline probably due to the very high increase experienced in the same period of 2017. On the other side, the difficulties experienced by construction seems to be reflected in these numbers. However we must note that the same figures for 2017 shows an extremely high increase in bonus pay.

 

The labour market also continues to be in a great shape

Unemployment fell by 0.1% dropping to 4.2%, which is the lowest level since 1975. The result came as a surprise considering that just two months ago the rate went up to 4.4% before going back again to 4.3% in the next reading.

 

Several mixed messages ahead of the MPC meeting

The second Thursday of May will see the MPC meeting deciding whether or not to raise the main Bank rate to 0.75%. Markets are betting on this to happen, however the data do not completely back the call for a rise. Indeed, CPI growth has been slower than predicted as well as wage growth. On April 27th we will find out how much the UK economy expanded in the first quarter of 2018 and the reading will not be risk-free. The bad weather of February and March had an impact on production but also on construction and retail sales according to PMIs and “hard” data. GDP growth may actually be slower than expected and this may possibly have an impact on this MPC decision and future ones.

Stay tuned!

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Our latest Pay Bulletin is out

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