December’s inflation-beating increase in wages offers both good and bad news for the UK, Charles Stanley (LSE:CAY) analyst Rob Morgan has said.
Though the 5.8% jump in wages indeed outdid December’s 4.2% inflation rate, offering further relief to cash-strapped households, Morgan noted the trend could delay base rate cuts.
“Today’s wage rises contribute to tomorrow’s spending power, impacting demand, and influencing inflation,” he commented, “the Bank (of England) will be keenly monitoring average earnings growth in particular”.
“Resilient wages have been a driver of sticky consumer price inflation, and they are not falling back into line as fast as the BoE would like.”
A near-10% jump in minimum wages from April could add further upward inflationary pressure, he warned, placing market expectations for a spring rate cut in doubt.
“Price rises should keep trending concertedly lower over the next few months towards the bank’s 2% target, but wage growth above inflation is a major factor that stands in the way of earlier cuts to interest rates,” Morgan added.
The figures coincided with unemployment data, which came in lower than expected at 3.8% compared to 4% predictions.
This was down on November's 3.9%, with the number of employed individuals rising by 72,000 to 33.17 million, but a record number of people reporting long-term illness.
Vacancies fell by 26,000 to 932,000.
"Job openings are still falling, illustrating reluctance of some employers to take on new staff as the economic outlook appears cloudy," Morgan said.
January's inflation figures are due on Wednesday.