Pay growth in the U.K. continues to slow even as unemployment falls, official data showed, bolstering the Bank of England’s case for keeping interest rates ultralow even as the U.S. Federal Reserve is expected to raise borrowing costs later Wednesday.
Average weekly earnings, excluding bonuses, rose 2% between August and October, the Office for National Statistics said, the slowest pace of growth since the three months to February. Wages started climbing in the final quarter of 2014 after a six-year-long squeeze on living standards, but figures show they have since lost some steam.
Meanwhile, Britain’s jobless rate fell to 5.2% in the same period—the lowest since the three months to January 2006—as the economy created 207,000 jobs.
For policy makers at the Bank of England, Wednesday’s data suggests unemployment has space to fall further before increased competition for jobs drives pay growth to accelerate and pushes up inflation, which the central bank is committed to keep at 2% in the medium term by raising or lowering it policy interest rate—currently at a record low 0.5%.
In fact, annual inflation in Britain was only 0.1% in November, fresh figures by the ONS revealed Tuesday, far below the BOE’s target. This means rate-setters at the U.K. central bank are likely to have ample room to leave borrowing costs low even if the Federal Reserve announces a rise in interest rates for the first time in nine years.
Many analysts believe a rise in short-term interest rates in the U.S. will push up the value of the dollar against sterling, as investment is set to flow into American assets to profit from higher returns. While beleaguered British exporters are likely to welcome a cheaper pound, it would also mean a rise in the price of imports, pushing up inflation. Economists also suggest officials at the Bank of England would feel less pressured to rise rates once the Fed has taken up the task of becoming the first major central bank to tighten monetary policy since 2011.
