UK private sector pay growth highest in 18 months

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Pay in the private sector increased at its fastest rate in 18 months in May despite higher unemployment, according to official figures published on Wednesday.

Private sector pay, excluding bonuses, rose by 4.3 per cent in May compared to the same month last year - its highest rate of growth since December 2004, according to the Office for National Statistics. The three-month average also edged up to 4 per cent, the largest increase in eight months.

The rise was partly driven by increased overtime in the retail sector, according to the ONS, which suggested stronger consumer demand, possibly caused by the World Cup excitement before the tournament got underway.

The larger than expected growth in underlying private sector pay will raise eyebrows at the Bank of England, which has been looking for signs that the huge increase in gas and oil prices might inflate wages.

However, taken as a whole, the data suggested a weakening labour market with rising unemployment and the lowest rate of increase in public sector pay growth for eight years.

Pay in the public sector increased by an annual 2.4 per cent in May, its lowest rate of growth since April 1998, suggesting that Gordon Brown, chancellor, intended to make good on his recent promise to keep a lid on wage inflation in the public sector.

Unemployment rose by 90,000 in the three months to May compared to the previous quarter, lifting the unemployment rate to 5.4 per cent from 5.1 per cent over the same period. The claimant count, which measures unemployment as those out of work and claiming benefit, increased by 5,900 in June compared to May, leading to a total of 956,600 claimants.

Nevtheless, the labour force continued to grow, boosted mainly by a continued influx of migrant workers, though lone parents and the long-term sick also contributed to the expansion. The number of people in employment rose by 59,000 in the three months to May but the employment rate was unchanged at 74.6 per cent.

John Philpott, chief economist at the Chartered Institute of Personnel and Development, said: “Total hours worked in the economy have fallen and there has been a further slight rise in the number of people being made redundant.

None of this indicates that the labour market is in particularly poor shape. But with the market clearly off the boil at present, there is nothing in these figures that strengthens the case for an early rise in interest rates.”

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