UK wages Preview: UK wages set to rise supporting rate hike outlook

• The UK unemployment is expected to remain stagnant at 4.1% in November.
• The UK regular pay (excluding bonuses) is expected to rise 3.3% over the year in three months to November, confirming the strongest pay rise in a decade from the previous month.
• The UK total pay (including bonuses) is expected to accelerate to 3.3% y/y in three months ending in November after rising 3.3% in the previous months.
• Low unemployment and solid pay increases are confirming the path of gradual rate hikes implied by the Bank of England in the November Inflation Report. 

Even with the Brexit uncertainty weighing on the UK business investment and consumer spending, the UK labor market is solid and firm and the fresh labor market report for December due Tuesday, January 22 is expected to confirm it again.

First and the foremost it is the average weekly earnings, or wages, that are set to dent the expectations of the Bank of England raising the Bank rate in May 2019 should Brexit deal confirm the UK leaving the European Union in pre-set term of March 29. The regular pay (excluding bonuses) is expected to increase 3.3% over the year in the three months to November, confirming the strongest pay rise in the last decade. 

On the top of it, the total pay is also expected to repeat last month’s reading of 3.3% y/y in three months ending in November. Strong pay increases reported in December UK labor market report are set to support Sterling on the currency markets, as pay rise implication in an environment of low inflation supports real earnings growth and will see the Bank of England hike the Bank rate in the anticipation of emerging wage pressures on inflation. 

“Consumer spending is being supported by a tight labor market, with the employment rate and vacancies at record highs and the unemployment rate close to record lows. Regular pay growth has been stronger than the MPC had expected, rising to over 3%,” the Bank of England Governor Mark Carney said at November Inflation Report press conference indicating that in the environment of Brexit uncertainty only gradual and limited Bank rate increases should be expected while indirectly sticking to a-one-rate-hike-a-year policy outlook. 

With just a few days ahead of the February Inflation Report from the Bank of England, the UK labor market is expected to keep on reporting solid figures with the unemployment rate near historical lows and wages rising dynamically enought for the Bank to acknowledge the emerging inflation stemming from wages pressures regardless of ongoing Brexit uncertainty.

UK regular pay growth rate, January 2005-October 2018