The strength of the UK labour market is expected to have remained steady in December, with the headline figures staying broadly unchanged from the previous month.
The unemployment rate in Britain has been falling sharply over the last two years, from 8.4% in January 2012 down to 5.8% in the quarter to November last year.
In December, the jobless rate is estimated to have remained steady at 5.8%. Wage growth picked up pace in November but market estimates expect the growth in earnings to have stayed unchanged in December and still well below the pre-crisis levels.
Average weekly earnings including and excluding bonuses are expected to have remained unchanged at 1.7% and 1.8%, respectively, in the three months to December. Jobless claims, a narrower and less distant gauge tracking labour market activity, is expected to have declined by 25,000 claimants in January, bringing the claimant-count rate down to 2.5%.
The Office for National Statistics (ONS) is releasing new data on Wednesday, 9:30 am GMT – the same time the Bank of England (BoE) releases minutes from the February Monetary Policy Committee (MPC) meeting, which is expected to show a unanimous vote on policy, and reflect the February Inflation Report forecasts.
Wage growth has been significantly suppressed since the 2008 financial crisis and has been among the primary reasons why it has taken so long for the UK economic recovery to gain more momentum.
Wages have been recently slowly picking up and are now above the level of consumer prices inflation. But this is not that much due to generous employers and stronger productivity in the labour market, but merely due to record low inflation. Otherwise, average earnings remain well below the pre-crisis levels. Still, the combination of super low inflation and a tentative increase in wages leads to higher real incomes which are set to spur spending throughout this year.
BoE cautious due to weak wages
Concerns about continuous weak wage growth keep the BoE cautious about the timing and level of monetary policy tightening in future.
In one of its latest surveys, the Chartered Institute of Personnel and Development (CIPD) said that even though the UK labour market was expected to continue to tighten markedly in 2015, it is more likely than not that a real increase in wage growth may not come until 2016.
Employment in the UK is estimated to rise by a further half a million over the course of the next year, while wage growth is expected to remain in a range between 1% and 2% for most or all of 2015, according to the CIPD.
"No significant increase in wage growth can be expected until 2016, and even then, it is not guaranteed," read the CIPD report which also stressed that "productivity needs to form the core of economic policy and employers need to raise their productivity - including developing their workforce - before skills shortages mount."
The BoE offered a similar view on wage growth for this year. At the latest MPC meeting, policymakers judged that wages were to remain suppressed this year due to low inflation expectations.
Pay growth might also depend on the development of inflation and inflation expectations over the coming months. Around 40% of pay settlements would be agreed in April when, according to Bank staff’s latest estimates, twelve-month CPI inflation was likely to be around zero, so there was a risk that any pickup in pay growth might be delayed
The BoE's February Inflation Report showed that policymakers left the labour market projections broadly unchanged. They see the jobless rate at 5.6% in the first quarter of 2015 and at 5.4% at the same time next year. February's Inflation Report data also showed the slack has been used up faster than estimated and is expected to be fully absorbed in the middle of the BoE's forecast horizon.
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