18 Feb 2015
UK labour market data – Wage inflation pick-up confined to bonuses – RBS
FXStreet (Barcelona) - Ross Walker, Senior UK Economist at RBS, reviews the UK labour market data release, noting that the jump in earnings growth was largely driven by bonus payments, with ex-bonuses growth rate edging down to 1.7%.
Key Quotes
“The most striking development was the jump in headline UK earnings growth to 2.1% 3m y/y in December from an upwardly revised 1.8%. This was the highest wage inflation since mid-2013 and some way above City forecasts (consensus 1.7%, RBS: 1.8%)."
“However, the increase was driven entirely by bonus payments – with the ex-bonuses growth rate actually edging down to 1.7% from 1.8%.”
“The scale and concentration of the upside bonus effect suggests that the increase may be primarily a reflection of variations in timing rather than in the overall size of City bonus pools – we will have a clearer take on this in 2-3 months’ time.”
“Moreover, to the extent that bonus payments reflect improved profitability and productivity, they are not inherently inflationary.”
“What would (should) be of greater concern to policymakers is any evidence of across-the-board basic pay increases which are not warranted by improved productivity. The latest data give few grounds for concern on this front (even financial services ex-bonus wage growth was slower: 2.3% 3m y/y from 2.7%).”
“Alongside the perkier wage inflation data, the employment statistics were stronger than expected. ILO employment rose by 103k (+0.3%) in the three months to December/Q4, twice as fast as the consensus & RBS forecast.”
“However, note that the fall in the unemployment rate, to 5.7% from 5.8%, reflects both falling unemployment (-97k in the three months to December) and a sizeable increase in inactivity (+77k).”
Key Quotes
“The most striking development was the jump in headline UK earnings growth to 2.1% 3m y/y in December from an upwardly revised 1.8%. This was the highest wage inflation since mid-2013 and some way above City forecasts (consensus 1.7%, RBS: 1.8%)."
“However, the increase was driven entirely by bonus payments – with the ex-bonuses growth rate actually edging down to 1.7% from 1.8%.”
“The scale and concentration of the upside bonus effect suggests that the increase may be primarily a reflection of variations in timing rather than in the overall size of City bonus pools – we will have a clearer take on this in 2-3 months’ time.”
“Moreover, to the extent that bonus payments reflect improved profitability and productivity, they are not inherently inflationary.”
“What would (should) be of greater concern to policymakers is any evidence of across-the-board basic pay increases which are not warranted by improved productivity. The latest data give few grounds for concern on this front (even financial services ex-bonus wage growth was slower: 2.3% 3m y/y from 2.7%).”
“Alongside the perkier wage inflation data, the employment statistics were stronger than expected. ILO employment rose by 103k (+0.3%) in the three months to December/Q4, twice as fast as the consensus & RBS forecast.”
“However, note that the fall in the unemployment rate, to 5.7% from 5.8%, reflects both falling unemployment (-97k in the three months to December) and a sizeable increase in inactivity (+77k).”