Commenting on the ONS labour market figures out today, Yael Selfin, Chief Economist at KPMG UK, said:
“Today’s data increases the discrepancy between unemployment falling to a record low of 4.5% by May and nominal wage growth remaining subdued. We would typically expect low unemployment to push wages up so there is clearly more at play here.
“With average nominal weekly earnings rising by 2% (excluding bonuses) and inflation at 2.9%, real earnings fell by 0.5% compared to a year earlier. Given the continuing pressure on household budgets we expect consumers to remain cautious for the rest of this year, making the prospects of a pick-up in spending more distant.
“Not only is the unemployment rate at its lowest point since 1975, it has also reached the Bank of England’s ‘break even’ point of unemployment from which we are likely to see inflation accelerate more because the labour market is too tight and companies compete too much for workers. This, combined with concerns over rising levels of consumer credit, should make the BoE keen to reverse last year’s rate cut. However, sluggish wage growth and a faltering economy will probably mean the first rate hike is pushed into next year.”
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