UK employment jumps but strong wage growth still elusive

LONDON (Reuters) - British employers hired many more workers than expected in early 2018 but wage growth has yet to accelerate sharply, according to figures that leave the Bank of England still waiting for signs the economy is ready for a rise in interest rates.

City workers lay in the sun in a garden next to St Paul's Cathedral in the City of London, Britain May 14, 2018. REUTER/Henry Nicholls

Employment rose by 197,000 during the first three months of this year, the biggest jump since late 2015 and far exceeding the 130,000 consensus expectation of a Reuters poll of economists.

Sterling and British government bonds were little moved by the figures, which showed a familiar picture of solid growth in jobs, unemployment at its lowest level in decades, but only a modest pick-up in pay for most British workers, who have been hit by higher inflation since the 2016 Brexit vote.

Annual growth in earnings, excluding bonuses, edged up to 2.9 percent in the three months to March after a 2.8 percent rise in February, the Office for National Statistics (ONS) said on Tuesday, as expected in the Reuters poll.

While this was the biggest increase since the three months to August 2015, it represented only a 0.4 percent increase in pay in inflation-adjusted terms.

Including bonuses, total pay growth cooled to 2.6 percent from 2.8 percent in the three months to February, as expected.

Last week the BoE left interest rates on hold, despite saying in February that borrowing costs were likely to go up more quickly than it had previously thought. It said it wanted to be sure the economy was bouncing back after barely growing in the first quarter.

Economists said the strength of hiring in Tuesday’s figures suggested Britain’s economy did not have such a bad start to 2018 as portrayed by the preliminary official data.

“On balance, the combination of robust employment growth, falling unemployment and stronger underlying earnings growth, as well as a clear relapse in productivity in the first quarter, looks supportive to a Bank of England interest rate hike in August,” said Howard Archer, chief economic adviser to the EY ITEM Club consultancy.

“However, much is likely to depend on whether the UK economy sees clear signs of marked improvement over coming months.”

The ONS published new figures for employment of foreign nationals and for productivity, a long-term problem for Britain’s economy.

Output-per-hour fell by 0.5 percent quarter-on-quarter in the three months to March after a 0.7 percent rise in the fourth quarter of 2017, marking the biggest fall since late 2015 and denting hopes that British productivity was on the mend.

Less than a year before Britain is due to exit the European Union, the ONS said the number of EU nationals employed in Britain fell by 1.2 percent from a year ago to 2.292 million -- the biggest drop in percentage terms for eight years.

(GRAPHIC-UK claimant count,

Reporting by Andy Bruce; Editing by Catherine Evans