April 12, 2017 / 8:38 AM / 9 months ago

UK wage growth after inflation almost disappears

LONDON (Reuters) - Inflation almost completely gnawed away the growth in pay of British workers during the three months to February, the clearest evidence yet that households are feeling the strain of rising prices as Brexit negotiations begin.

Inflation-adjusted pay growth inched up just 0.2 percent over the period, the weakest increase since mid-2014, official data showed on Wednesday.

The figures drove home how households are grappling with rising prices in shops, exacerbated by the pound’s plunge that followed last year’s vote to leave the European Union and by rising global oil prices.

The unemployment rate in the period between December and February held steady at an almost 12-year low of 4.7 percent, in line with the median forecast in a Reuters poll of economists.

“Big picture remains a labour market with very strong employment plateauing at record highs ... combined with a pay disaster,” Torsten Bell, director of the Resolution Foundation think tank, said on Twitter.

Sterling hit its highest level in over a week against the U.S. dollar after the figures as investors focused on a slightly stronger-than-expected rate of nominal pay growth. [GBP/]

Earnings including bonuses rose by an annual 2.3 percent in the three months to February, unchanged from the previous period, the Office for National Statistics (ONS) said on Wednesday.

Workers are seen in office windows in the financial district of Canary Wharf in London November 3, 2015. REUTERS/Kevin Coombs

Economists taking part in a Reuters poll had expected growth of 2.2 percent.

An expected further rise in inflation is raising the prospect that wages, in real terms, will soon start to contract, as they did in most of the years since the 2008/09 recession.

Consumer price inflation stood at 2.3 percent in the 12 months to March and the Bank of England expects it to approach 2.7 percent by the end of this year. Many private economists expect inflation will surpass 3 percent this year.

FILE PHOTO: People walk accross a plaza in the Canary Wharf financial district, London, Britain, January 9, 2017. REUTERS/Dylan Martinez/File Photo

After Britain’s economy withstood the initial shock of the Brexit vote last year, economists have reined in their forecasts for how much unemployment is likely to rise.

But the ONS said the number of unemployment benefit claimants - which is a potential early warning sign of an economic downturn - rose by 25,500 to 765,400 in March, the largest increase since July 2011.

Economists taking part in the Reuters poll had expected the number of benefit claimants to fall by 3,000.

The number of people in work increased only modestly by 39,000 although the employment rate of 74.6 percent was a joint record high. Job vacancies in the three-month period to the end of March rose by 16,000 to a record high 767,000.

British workers are becoming more reticent about moving jobs as the process of leaving the European Union gets underway, exacerbating long-standing skill shortages, a survey of recruiters showed on Friday.

Editing by William Schomberg and Janet Lawrence

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