CRUNCH time is approaching for Britain's labour market. Figures released today show that unemployment held steady at 5.5% in the three months to April, as the pace of job creation slowed. With joblessness now just half a percentage point above the Bank of England’s estimate of its equilibirum, Britain’s jobs boom, which has seen employment rise by 2m in five years, may be nearing its end.
That means growth in demand (or spending in the economy) is beginning to show up in wage rises, rather than new jobs. Regular pay, excluding bonuses, is now growing at 2.7% annually in nominal terms—easily the fastest rate of growth since February 2009. Thanks to near-zero inflation, workers are enjoying their juiciest real (ie, inflation-adjusted) pay rises since November 2007 (see first chart).
Increasing nominal wage growth will worry inflation hawks. In their June meeting, interest-rate setters at the Bank of England voted unanimously to keep interest rates at 0.5%, but two of the nine members—probably Martin Weale and Ian McCafferty, the usual hawks—continued to think the case for a rate hike was “finely...Continue reading
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