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U.K. Wages Climb More Than Forecast in Tight Labor Market

David Goodman
LONDON, ENGLAND - OCTOBER 04: Commuters walk across London Bridge during morning rush hour on October 4, 2010 in London, England. London Underground workers are staging a 24 hour walk out over concerns at plans to cut jobs, causing large disruption to the capitals transport network. (Photo by Matthew Lloyd/Getty Images) Photographer: Matthew Lloyd/Getty Images Europe

U.K. wage growth accelerated over the summer amid the lowest jobless rate in more than four decades.

Earnings excluding bonuses rose an annual 2.9 percent in the three months through July, more than the 2.8 percent economists forecast. In July alone, basic wages rose 3.1 percent, the most since 2015, and vacancies are at record levels, the Office for National Statistics said Tuesday.

A tightening labor market prompted the Bank of England to increase interest rates last month to their highest level since 2009. In the private sector, three-month pay growth climbed to 3 percent.

Muted productivity means that even a modest wage pickup could fuel inflation as companies raise prices to protect their margins. Officials, who are expected to hold fire at their meeting this week, say further rate hikes will be needed.

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The pound was little changed at $1.3037 as of 9:51 a.m. in London.

Wages are now growing faster than prices in a boon for hard-pressed households squeezed by years of meager pay rises and, more recently, a pound-induced inflation surge. Real wages remain below their levels before the financial crisis.

The jobless rate held at 4 percent, the lowest since 1975.

There was less positive news on employment, which rose by just 3,000 during the period though the employment rate stayed close to a record high and the number of people in work appeared to rebound in July. Unemployment, which fell 55,000, may have risen over the quarter but for a sharp rise in the inactivity rate.

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Overall wage growth quickened to 2.6 percent between May and July and the BOE sees a pickup toward 3.5 percent next year. The ONS cautioned that subdued wage growth a year earlier may have slightly inflated the latest figures.

There was only a small impact from pay rises in the National Health Service in July. Public-sector workers are benefiting from the easing of a cap on pay increases in place since 2010.

Updates market reaction in fifth paragraph.

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