Wednesday's labour market data from the ONS is expected to show that a tightening labour market and skills shortages continue to generate upward pressure on earnings in some sectors of the UK economy.
Economists expect the jobless rate to have remained unchanged at 5.5% in the quarter to August, as the number of people claiming unemployment benefits is seen rising again in August, after more than two-and-a-half years of continuous sharp falls in jobless claims. The Office for National Statistics (ONS) is releasing labour market figures for August on Wednesday.
"The LFS [Labour Force Survey] unemployment rate had fallen by over 2 percentage points over the past two years, levelling off in recent months, and was close to Bank staff’s estimate of its medium term equilibrium rate," the Bank of England (BoE) chief policymakers argued in October.
According to the latest Recruitment and Employment Confederation (REC) and KPMG's Report on Jobs, the pace of permanent job placements creation eased to a two-and-a-half year low in September, while starting salaries continued to increase, although at the slowest pace in twenty months, but the rate of growth remained strong.
In its October MPC minutes, the BoE saw a mixed picture within the UK labor market. It said some surveys showed hiring problems were constraining workforce expansion, and some businesses needed to increase pay to some workers in order to offset skills shortage. But at the same time it said the average number of hours worked per employee "had fallen by 0.5% in the three months to July and remained considerably lower than the number of hours that LFS [Labour Force Survey] participants reported that they would be willing to work."
Regular earnings, those stripped of bonus payments, are seen rising 3% in the quarter to August, from 2.9% a month before. Despite accelerating from post-crisis lows, the BoE sees the current rates of pay growth and the overall labor costs as too weak to offset significant external downward pressures, and therefore too weak to return CPI inflation back to the 2% target in the medium-term.
Although picking up pace recently, wages still remain well below their pre-crisis levels. While earnings increased on average by 4% before the crisis, between 2001 and 2008, the same measure of pay rose just 1.5% on average between January 2009 and July 2015.
A survey published by the Resolution Foundation (RF), an independent think tank that aims to improve living standards in the UK, showed flat growth in productivity, when compared with the pre-crisis period. The survey fuels concerns that the recovery in real earnings growth may well be only short-lived, given the expectations of "a relatively swift readjustment of inflation towards its target rate."
Still, the report offered a somewhat positive outlook, saying the compositional drag on wage growth, which has been fueled by an increased creation of lower-paid jobs after the 2008 financial crisis, has faded out.
Growth in wages, and the overall labor costs, are among the primary variables measuring domestically-generated inflationary pressures, and has therefore been among the BoE's key measures used when considering monetary policy response in Britain.
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