James Smith, Developed Markets Economist at ING, suggests that for the UK economy, where inflation has been more lacking, wage growth has continued to outperform.
“Pay is now rising at the fastest rate in over two years, and Bank Agents are suggesting that this could be the best year for pay settlements since the crisis. Admittedly it is still early days. A portion of these gains is related to the higher living wage level, while weakness in the first quarter of 2017 has been flattering the year-on-year rates of wage growth. This latter point means we’ve probably hit a short-term peak in wage growth with base effects set to kick in.”
“But even so, the momentum remains solid (albeit a little slower than three or four months ago), and we don’t expect the data before August to change policymaker’s minds that the overall direction is upwards. Remember that optimism on wage growth is central to the Bank’s rate hike rationale.”