UK jobs market defies economy's Brexit slowdown

LONDON (Reuters) - British workers’ pay growth maintained its fastest pace in a decade in late 2018 and job creation stayed strong, data showed, suggesting the labour market was buoyant ahead of Brexit as the broader economy slowed.

FILE PHOTO: Workers pick orders at the PC World and Carphone Warehouse distribution centre in Newark, Britain November 21, 2017. REUTERS/Darren Staples//File Photo

Total earnings, including bonuses, rose by an annual 3.4 percent in the three months to December, matching their fastest pace of growth since mid-2008.

The increase was a touch below a forecast for a pick-up to 3.5 percent in a Reuters poll of economists.

Average weekly earnings excluding bonuses also rose by 3.4 percent on the year, the Office for National Statistics said on Tuesday, in line with the poll forecast.

Britain’s strong labour market has defied a slowdown in the economy since the 2016 referendum vote to leave the European Union.

Tuesday’s figures showed the number of people in work rose by 167,000 in the three months to December, the biggest increase since the first quarter of 2018 and stronger than the poll’s forecast of 140,000.

With Britain due to leave the EU in just over a month’s time, and no clarity yet on whether it will get a deal to smooth the shock, many companies have cut investment in equipment, potentially making them more likely to hire workers.


However, Honda’s announcement that it will close a plant with the loss of 3,500 jobs and Nissan’s decision not to build a new model of car in Britain have raised concerns about the outlook for big manufacturers against the backdrop of Brexit and a slowing world economy.

Signs of nervousness among businesses might be yet to appear in the jobs figures, Andrew Wishart, an economist with consultancy Capital Economics, said.

“The (business) surveys deteriorated more markedly in January, so a Brexit effect might start to weaken employment growth in the next batch of official data.”

With unemployment at its lowest rate since 1975 - 4.0 percent in the three months to December - employers have begun raising pay for staff more quickly.

The Chartered Institute of Personnel and Development, a human resources professional body, said on Monday that private-sector employers planned to increase basic pay rates this year by the most since the survey started in 2012.

The Bank of England has said it will need to raise interest rates gradually to offset inflation pressures from rising pay.

This month, it forecast wage growth would slow to 3.0 percent by the end of 2019 before picking up again.

When adjusted for inflation, total earnings in the last three months of 2018 rose by 1.3 percent, the fastest increase since late 2016, the ONS said.

However, the pace of nominal wage rises remains slower than the 4 percent increases of before the financial crisis.


Tuesday’s ONS data showed a downside of the continued strong job creation in the form of a latest fall in productivity, the Achilles’ heel of Britain’s economy.

Output per hour fell 0.2 percent in annual terms in the last three months of December. The last time it declined by more was in late 2015, the ONS said.

Weak productivity puts long-term pay growth in jeopardy and risks pushing up inflation.

The ONS data showed a fall in the number of EU workers in the United Kingdom, largely driven by a decline in eastern European workers. But the number of non-EU workers rose, resulting in a total annual increase of 83,000 foreign workers in the country in the last three months of the year.

Writing by William Schomberg; editing by John Stonestreet