Finance

The UK annual wage growth accelerated in February

The UK annual wage growth accelerated in February

The Consumer Price Index (CPI) for March fell to 2.5 per cent, down from 2.7 per cent in February, while the Consumer Prices Index including owner occupiers' housing costs (CPIH) fell to 2.3 per cent in March, down from 2.5 per cent in February. The recently resurgent pound fell sharply on the news and was trading 0.7 percent lower at $1.4188. The agency said the biggest drag on inflation came from prices for clothing and footwear rising by less than they did a year ago.

"The fact that inflation has fallen further means that real wages are likely to have strengthened more than expected, relieving some of the pressure on consumers", noted Paul Hollingsworth, senior United Kingdom economist at Capital Economics research group.

Inflation has fell below expectations in March, throwing doubt on whether the Bank of England will raise interest rates next month. Retailers have been struggling since the 2016 Brexit vote pushed the value of the pound down, and the cost of living rose.

That should help to ease some of the inflation pressure which has hurt the spending power of many households. "Inflation looks to be falling back as predicted, but with wages picking up and unemployment still falling, it's possible this tightness in the labour market could eventually push inflation back up", he said in a statement.

Experts had widely expected rates to rise above 0.5% next month with another hike having been factored in for November. Prices dropped by 1% in the year to February.




Wednesday's inflation data comes just 24 hours after the ONS revealed that wages in the United Kingdom grew by 2.8% over the most recent data period. It was the first time since January 2017 that wage growth had outstripped inflation.

Euro zone bond yields DE10YT=RR extended their falls after the United Kingdom inflation numbers as British gilt yields tumbled. Unemployment, for example, is at its lowest rate since 1975.

Household consumption accounts for about 60% of the value of the United Kingdom economy.

The narrowing of the wage/inflation gap will make a rate hike next month more likely, but the UK's lack-lustre growth mitigates against tightening monetary policy right now.

"Traders had been betting on an interest rate rise next month from the Bank of England", said Ben Brettell, senior economist at Hargreaves Lansdown. "Higher rates now will mean scope for a loosening of policy should the economy take a turn for the worse".


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