Private sector wage leaps strengthen case for rise in rate

Signs of rising wage pressures on Wednesday were set to harden Bank of England rate-setters’ resolve on the first rate hike in a decade next month.

Average salaries across the wider economy grew 2.1% on last year in the three months to August, well behind inflation at a three-year high of 3%.

But the Bank is closely watching pay developments in the private sector, which accounts for more than 80% of the economy and where recent growth has been much stronger at 2.4%.

Drawing out recent trends in month-to-month pay rises among private firms over a whole year points to annual salary growth running at more than 3%, according to Nomura economist George Buckley. “This is the perfect evidence that the Bank needs to support a hike,” he added.

Unemployment remains at a 42-year low of 4.3%, suggesting diminishing slack in the labour market.

But the growth in the number of people in work slowed to 94,000 over the quarter, barely half the pace of the previous quarter.

EY ITEM Club economist Howard Archer said: “Persistent lacklustre economic growth and appreciable economic and Brexit uncertainties may be starting to rein in the labour market’s strength.”