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UK Economy
UK wage growth accelerates to 1.4%
From the Financial Times of Wed, 17 Dec 2014 11:32:20 GMT
A commuter uses a personal mobile device as he walks across London Bridge near the Shard tower in London, U.K., on Monday, Jan. 13, 2014. Job vacancies at London's financial-services companies fell 21 percent in 2013 as banks curbed hiring plans, according to a recruitment firm. Photographer: Jason Alden/Bloomberg©Bloomberg

Wage growth has picked up in the UK in a hopeful sign Britons’ living standards are starting to recover after a painful five-year decline.

Weekly pay for employees was 1.4 per cent higher in the three months to October than a year earlier, official data show, a better number than economists were expecting.

Excluding bonuses, pay was 1.6 per cent higher. Those rates are higher than inflation, which has slowed to just 1 per cent in the UK.

The figures suggest workers’ pay is finally starting to recover in real terms after an 8 per cent fall in the years since the financial crisis. That was the longest and steepest decline since records began and the worst of any rich industrialised country.

“We have clearly turned the corner,” said Alan Clarke, an economist at Scotia Bank. “This is great news for consumer spending and highlights upside risks to growth next year.”

The figures delighted the coalition government, which has been hoping desperately for a recovery in voters’ living standards before May’s general election. George Osborne, the chancellor, said it was “a major moment in the British recovery”.

Earnings growth and inflation

Most economists expect real pay growth to accelerate, partly because inflation seems likely to fall further, and partly because declining joblessness means there is less competition for jobs. There are now 2.8 unemployed people per job vacancy, down from 5.8 two years ago.

“We are soon going to be seeing quite a pick-up in real take home pay,” said James Knightley, an economist at ING. “With consumer confidence back at pre-crisis levels this should be very good news for consumer spending, thereby allowing the UK to be a relative outperformer in terms of GDP growth in 2015.”

However, it will take a long time for real wages to recover the lost ground. The UK official fiscal watchdog this month predicted real wages would still be lower in 2019 than they were in 2007 before the financial crisis.

Meanwhile, the number of people in full-time employment has finally surpassed the pre-crisis peak as the labour market continues to heal.

When the labour market first started to recover, much of the increase in employment was among part-timers, temporary workers and the self-employed, which raised fears the “jobs recovery” was based on low-quality and precarious work.

UK unemployment

But that pattern now appears to be reversing: all the new jobs in the three months to October were for full-time employees, while the number of self-employed workers fell and the number of temps stayed flat.

“This is all reassuring news,” said Professor Geraint Johnes, the director of Lancaster University’s Work Foundation. “We have expressed concern in recent months about the high levels of insecurity that remain in the labour market. While this is still a concern, the latest figures indicate that we are clearly moving in the right direction.”

Unemployment continued to fall, but at the slowest rate since July 2013. There were 63,000 fewer jobless people in the three months to October and the unemployment rate remained steady at 6 per cent.

The slower fall in unemployment is a good sign for productivity growth, which has been weaker in the UK than most other rich industrialised countries in the years since the crash.

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