The UK jobless rate is expected to fall, while wages are seen rising further above the current rate of inflation.
The unemployment rate in Britain has been falling sharply over the last two years, from 8.4% in January 2012 down to 5.7% in the quarter to December last year.
In the three months to January, the jobless rate is estimated to have fallen further to 5 6.%, while average earnings growth, excluding bonuses, is expected to have bounced back to 1.8% in the quarter to January, up from a rise of 1.7% in December, and 1.8% in November last year.
Jobless claims, a narrower and less distant gauge tracking labour market activity, is expected to have declined by 30,000 claimants in February, bringing the claimant-count rate down to 2.4%, from 2.5% in the month before.
The Office for National Statistics (ONS) is releasing new data on Wednesday, 9:30 am GMT – the same time the Bank of England (BoE) is releasing minutes from the March Monetary Policy Committee (MPC) meeting, which are expected to show a unanimous vote on policy.
Tighter labor market to generate inflationary pressures
In its February Inflation Report forecast, the BoE said it expected the jobless rate to continue falling to hit 5.4% at the end of this year. Robert Wood, Berenberg bank's UK chief economist, wrote in his comment on Tuesday that "the unemployment rate would drop below 5.0% by year-end if it kept falling at its average rate over the past two years."
The BoE has been using labour market data to measure domestic inflationary pressures and set the path for monetary policy accordingly. The policymakers estimate that the slack in the UK labor market is currently around 0.5% of gross domestic product (GDP) and this slack is expected to be absorbed by the middle of the forecast period, which is mid-2016.
Some within the BoE's rate-setting committee argue that a sharply tightening labor market will more likely than not lead to significant domestically-generated upward price pressures soon. The current level of consumer price inflation in the UK is at the record low of 0.3% and the rate is to remain that low for the rest of this year, but much of the downward pressure comes from external factors such as lower prices of energy and food.
The latest survey by the Recruitment and Employment Confederation (REC) and KPMG showed jobs creation rose at the fastest pace in four months in February, while salary growth increased markedly.
“Recruiters are reporting talent shortages across the economy as businesses expand in response to increasing demand,” REC chief executive Kevin Green said, referring to upward pressures on wage growth.
Low near-term inflation a risk to wage growth
In one of his most recent interviews, MPC member Ian McCafferty said that inflation should reach the bottom in spring, which coincides with the peak of the wage-bargaining season.
"More than two thirds of pay settlements are agreed between January and April, a period the MPC will be watching 'very carefully'. If the current ultra-low inflation outlook has a 'material impact' and drives down wage deals, the risk is this exceptional period could be prolonged," McCafferty said on February 19.
Further on wages, February MPC minutes said that "it was also possible that wage growth would be influenced by the weakness of headline CPI inflation. There was a chance that this would lead to lower pay deals than otherwise, especially if it were accompanied by a perception that inflation would be below the target not just in the near term, but in the medium term too."
Martin Weale, another member of the BoE's nine-strong rate-setting committee, dismissed those concerns recently saying that "the risk that [inflation] expectations may be depressing wage growth is very real, but at present my concerns are that wage growth is accelerating rather than declining, while unemployment continues to fall rapidly."
"If wage growth continues to accelerate over the next few months, especially in the absence of a pick-up in productivity, then for me it strengthens the case for a rise in Bank Rate," Weale said during his speech at City and Islington Sixth Form College in London on March 11.
Earlier this week, the UK Treasury said minimum wage would be increased by 3% to a new rate of £6.70 per hour, effective from October 2015. This will be the largest real-term increase since 2008.
Disclaimer: The information provided by WBP Online come from its Reporters and Foreign Correspondents and its third party suppliers ("Information Providers"). WBP Online believes its text services to be reliable, but accuracy is not warranted or guaranteed. This includes facts, views, opinions and recommendations of individuals and organizations deemed of interest.
Neither WBP Online nor Information Providers guarantees the accuracy, completeness or timeliness of, or otherwise endorses, these views, opinions or recommendations, gives investment advice, or advocates the purchase or sale of any security or investment.