British pay growth slows to record low even as jobless rate falls

LONDON - British workers' earnings grew at the slowest rate on record in the three months to May, one gauge showed, even as unemployment fell further, giving the Bank of England pause for thought as it prepares to start raising interest rates.

Official data released on Wednesday showed earnings excluding bonuses rose by an annual 0.7 per cent in the three months through May.

That was less than half the rate of inflation and the slowest growth in regular pay since records began in 2001, taking some of the shine off the economic recovery which Britain's ruling Conservative Party is hoping will help deliver success in next year's national elections.

British government bond prices briefly rose and sterling fell on the weak earnings numbers, which could ease pressure on the BoE to raise interest rates later this year. "With few signs that the labour market is a source of inflationary pressure, there remains no pressing need for the Monetary Policy Committee to raise interest rates this year,"said Samuel Tombs, an economist at consultancy Capital Economics.

Britain's economy has been recovering fast for more than a year, raising questions about the need for continued stimulus.

The Office for National Statistics said on Wednesday that the jobless rate fell to 6.5 per cent from March to May from 6.6 per cent a month earlier, down sharply from 7.8 per cent in the same period last year.

The unemployment rate, which matched economists' forecasts in a Reuters poll, was the lowest since the October-December period of 2008 - when the global financial crisis was snowballing.

But the weak earnings figures underscored the BoE's view that the recovery can continue without risking a big pickup in price pressures.

In the three months through May, total pay including bonuses rose a yearly 0.3 per cent, the weakest growth in five years.

That was below a forecast of 0.5 per cent in the Reuters poll and down from a yearly rise of 0.8 per cent in the three months to April.

The Bank is forecasting 2.5 per cent wage growth this year, up from 1.25 per cent for 2013 as a whole but still well below a pre-crisis average of 4.5 per cent.


An ONS official said May's total earnings growth was still affected by comparisons with the same month last year, when many companies made delayed payments of bonuses to help their employees benefit from an earlier cut in income tax.

The effect of the rush of delayed bonuses also impacted April's earnings readings.

In the month of May alone, total pay rose by 0.4 per cent, up from a fall of 1.5 per cent in April, the ONS said.

But excluding bonuses, pay rose by an annual 0.6 per cent in May alone, barely picking up from 0.5 per cent in April.

The Conservative Party is highlighting the fall in unemployment as it tries to win over voters ahead of the May 2015 national elections. But the opposition Labour party is focusing on what it calls Britain's cost of living crisis.

Pay growth lagged inflation for most of the period since 2008, then narrowly overtook it at the start of this year, and then fell back again in the last couple of months.

Data on Tuesday showed inflation in June rose to 1.9 per cent.

Wednesday's labour market figures showed the number of people in employment rose by 254,000 to 30.643 million in the three months through May.

The rise in employment was due mainly to people being hired by companies. Much of the initial recovery in the labour market, which began last year, had been due to people becoming self-employed.

The number of people claiming unemployment benefit in June fell by a bigger-than-expected 36,300, and the number for May was also revised to show a bigger fall than first reported.

The decrease in unemployment to 6.5 per cent took the rate further below the 7 per cent which was originally the level at which the BoE said it would consider raising interest rates.

But unemployment then fell much faster than it expected, prompting the central bank to switch in February to a broader, and harder-to-measure, assessment of spare capacity in the economy as its yardstick for considering a rate hike.