Surprise rise in wages and jobs

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The Independent Online
WAGE LEVELS surged over the summer, according to figures published yesterday that will fuel fears that interest rates must rise sooner rather than later. Average earnings rose to 4.4 per cent for the three months to June, compared with 4.3 per cent in May, and confounding forecasts of a fall to 4.1 per cent.

The unexpected rise was driven by a surge in public-sector pay awards. Earnings growth accelerated to 4.8 per cent from 4.6 per cent.

Private sector earnings were unchanged, although the monthly figure showed June was 5.3 per cent higher than a year ago, compared with 3.9 per cent in May.

The services sector, which includes a significant contribution from the public sector, leapt to 4.6 per cent from 4.3 per cent, while manufacturing was unchanged at 3.4 per cent. The Office for National Statistics said the rise was driven by large bonuses in the telecoms, real estate, financial and retail sectors, and delayed public sector deals for the NHS and teachers.

The number of benefits claimants fell by 32,900 in July compared with June, to its lowest level since May 1980. The preferred International Labour Organisation measure, which includes those ineligible for benefits, fell to its lowest level since records began in 1984.

The wages data, which came just an hour before the Bank of England said it would monitor all data for signs of inflationary pressure, raised expectations of a hike in rates. "With unemployment also continuing to fall, these data will be grist to the mill of the Monetary Policy Committee's inflation hawks," said Richard Iley, of ABN Amro.

Jonathan Loynes, of HSBC, said that there was a "good chance" private- sector pay awards would ease off as pay deals started to track the current low inflation levels of 1.3 per cent.

In yesterday's key Inflation Report, the Bank said there was considerable uncertainty over the extent to which structural reforms of the labour market, such as cuts in trade union power, had lowered the rate of unemployment that would trigger inflationary pressures. "All members say there has been significant change in labour market behaviour over a number of years but not all agree on its quantitative implications for future earnings growth," it said.

John O'Sullivan, of Greenwich NatWest, said the data would "add to, rather than resolve" the MPC's uncertainties

Ryan Shea at First Chicago said: "Given the way the MPC works, they will have to start to tighten rates in six months."

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