UK: Stronger wage growth unlikely to rattle BoE – ABN AMRO

Bill Diviney, Senior Economist at ABN AMRO, explains that the UK data of yesterday continued to point to a tight labour market, and – more importantly for monetary policy – wage growth gaining momentum.

Key Quotes

“Nominal average weekly earnings growth picked up to 3.1% yoy in July from 2.8% in June – unrounded, this was the fastest pace since November 2008. While 3m/3m jobs growth slowed to just +3k from +42k in June, the unemployment rate held at a four-decade low of 4.0%.”

“Although jobs growth has started to slow, we think the risks are skewed to the unemployment rate falling further still in the coming months, with the recent drop in net migration having a dampening effect on labour force growth.”

“This is likely to put further upward pressure on wage growth. This is of course predicated on our base case of the UK leaving the EU with a deal next March, with recent newsflow pointing to that being the increasingly likely outcome.”

“Consistent with the balance of risks facing the UK, and BoE Governor Carney’s signalling, we expect one further rate hike from the MPC in 2019, which is currently one hike less than the Bloomberg consensus.”

“Data are broadly consistent with the BoE’s outlook for wages, and as such are unlikely to lead to a renewed hawkish shift on the MPC.”