UK earnings growth slows unexpectedly in April

British workers' wages increased at their weakest annual pace since December in the three months to April as huge bonuses paid to City of London financial sector workers in the New Year fell out of the equation.
The Office for National Statistics said average earnings growth in the three months to April eased to 4.0 percent from a downwardly revised 4.4 percent in March, well below analysts' forecasts for a reading of 4.5 percent. Sterling fell after the figures as investors reckoned the data should soothe policymakers' concerns about inflationary wage deals and prevent them raising interest rates much further.
But most analysts still think a quarter-point hike to 5.75 percent in the next few months is almost certain as Bank of England Governor Mervyn King said this week more action may be needed if the economy keeps running up against its limits and businesses want to raise prices. King himself noted that average earnings have not really picked up. Fears they would have been a key reason behind four interest rate hikes since August.
"Developments in wage inflation remain the one piece of good news for the Bank of England in the wider pantheon of evidence that inflation pressures are rising," said Gavin Redknap, economist at Standard Chartered.
"The Bank can take heart from this, but as Mervyn King clearly indicated on Monday, it will be necessary for other inflation signals to moderate for the Bank to step back from tightening." In April alone, earnings were just 3.3 percent higher than a year ago - the weakest increase since January 2006. Excluding bonuses, earnings growth in the three months to April held steady at 3.6 percent.
Unemployment, meanwhile, continues to fall. The number of people claiming jobless benefits fell for the eighth straight month by 9,300 in May, taking the jobless rate down to 2.7 percent, the lowest since September 2005.
The ONS said employment in the three months to April fell 10,000 on the previous three months. The government's preferred ILO-measure of unemployment fell 15,000 in the three months to April, leaving the rate unchanged at 5.5 percent.