UK wage growth outstrips inflation as analysts see rate hike likely in May

Average wage growth in the UK in the three months to the end of February surpassed inflation for the first time in over a year, official data showed Tuesday

(April 17), which analysts say may bolster the case for a rate hike in May.

The Bank of England increased its key policy rate for the first time in over a decade to 0.5 percent in November 2017. Back then, governor Mark Carney cited higher inflation pressures as one of the major reasons for the decision.

The depreciation of the pound following the Brexit referendum in June 2016 took inflation over the 2 percent target, as wages remained subdued, despite low unemployment.

That now appears to be changing. Wages rose on average by 2.8 percent over the past three months, according to the Office for National Statistics, above the 2.5 percent inflation recorded in February.

Additionally, the unemployment rate has decreased to 4.2 percent, the lowest point since early 1975, according to the ONS.

However, wage increases may not be as strong in the future.

“The doubling of employer pension contributions under auto-enrolment in April may also see fewer employers willing to give staff a rise, particularly without higher productivity growth,” says Ian Browne, pensions expert at Old Mutual Wealth.