UK: Wage growth still about to take-off? - ING

At the heart of the BoE's thinking is an assumption that wage growth will pick-up pace considerably over the next few months, but we may not see wage growth take-off to the extent the Bank is forecasting, according to analysts at ING.

Key Quotes

“With the unemployment at multi-year lows, the BoE forecasts pay to rise 3% next year.”

“And there has certainly been some renewed momentum in the pay numbers over the past few months - a key reason why the BoE's Vlieghe turned more hawkish in a speech back in September. As the Bank tries to keep markets aligned to the idea of further gradual rate hikes to come, we suspect the Bank will maintain it's optimistic stance on wage growth when it meets in November.”

“However, we are slightly more cautious. The recent pick-up is partly explained by a rise in the national living wage back in April. And going forward, we think that a combination of ongoing Brexit uncertainty, weaker demand, and pressure on costs owing to the weaker pound, mean we may not see wage growth take-off to the extent the Bank is forecasting. There's also the issue of productivity growth, which is still stubbornly low.”

“It's also possible that much of the labour market resilience we've seen so far this year is down to the surprising economic momentum in the months following the UK referendum - in which case we could see the unemployment rate trough over the next few months if the growth slowdown starts to weigh on the jobs market.”