Investec, however, had a slightly different take on the numbers, pointing out that, although headline pay growth slowed from 2.1% to 1.9% on a 3m yoy basis, the annual comparison was weighed down by the fact that bonus payments were unusually strong in December 2014.
If bonuses are excluded, Investec pointed out, the increase is 2%, which is slightly stronger than consensus expectations, “So there could be signs that the recent weakness in wages has bottomed out.”
If one adds to this the news that total employment growth in hours worked was 1.7% in Q4, a case can be made, the firm said, that the labour market “appears to be booming”.
However, it added, this should not be taken as proof of the strength of the UK economy. “With GDP growth estimated by the ONS at 0.5% in Q4, today’s data suggest that productivity (in terms of hours worked) fell by over 1% in the final three months of last year. So rather than signalling booming aggregate demand, these data could be pointing to weakness in the supply side of the economy.
Given the muddied interpretations of the data, it is clear that the puzzle of productivity remains. And, it would seem, it is a puzzle for which the Bank of England’s monetary policy committee has yet to find a solution. What is more certain, however, is that with the wage growth data where it is, a rate hike in the UK feels ever further down the road.
