Average weekly earnings grew 2.1% year on year in the three months to June according to the latest data from the Office for National Statistics (ONS), beating previous predictions of a 1.8% increase.
The claimant count also dropped by 4,200, plunging unemployment to a new low of 4.4% not seen since 1975.
The influx of positive data followed confirmation on Tuesday that CPI remained unchanged at 2.6% while the CPIH measure, including housing, also steadied at 2.6% for the second consecutive month.
Despite the early signs of wage recovery, Hargreaves Lansdown’s senior economist Ben Brettel questioned if sustained growth was possible.
“Conventional economic theory – the Phillips curve – suggests that with unemployment as low as it is, sooner or later demand for labour will outstrip supply and workers will be able to demand higher wages,” he said.
“However, a fundamental shift in the labour market has led this relationship to break down, meaning wages remain depressed despite low unemployment.”
It means the central bank’s own forecast of 3% wage growth by next year was “optimistic” Brettel added.
He said: “If unemployment can fall further without causing wage inflation, there is absolutely no pressure on the Bank of England to raise rates.”
Brown Shipley’s deputy chief investment officer Alex Brandreth agreed that an inflation rise below what was expected provided “some breathing room for the Bank of England” and made it less likely to hike rates any time soon.
AJ Bell’s investment director Russ Mould had a more positive outlook, claiming the “only source of comfort” was that inflation for producers slumped to 6.5% on the back of lower oil prices while output prices rose just 3.2%.
“This suggests that a squeeze on corporate profit margins may be coming to a close and that price increases to end-consumers, to compensate for higher raw material costs, may not run away too strongly, potentially putting a lid on the headline inflation numbers,” Mould said.
