UK salaries rise at fastest rate in almost 10 years

The O2 online disruption affected bus and bike passengers in London last week.  AFP

UK wage growth accelerated to a near 10-year high, backing the Bank of England's view that there is now no spare capacity in the labour market.

Average earnings excluding bonuses rose 3.2 per cent in the three months through September from a year earlier, beating the 3.1 per cent in the three months through August and was the most since December 2008, the Office for National Statistics said on Tuesday. Unemployment unexpectedly rose from a 43-year low to 4.1 per cent.

The pay figure was higher than the 3.1 per cent rate predicted by economists in a Bloomberg survey. Upward pressure on wages is a sign of domestically generated inflation. With productivity subdued (output per hour rose an annual 0.1 per cent in the third quarter), Bank of England officials say gradual rate hikes will be needed.

Pay is continuing to outpace prices, a relief for households squeezed by the inflation surge following the 2016 Brexit vote, and a further pick up is forecast. But real wages are still below their pre-2008 crisis levels. Job creation has helped to support consumer spending.

The number of people in work rose 23,000 to a record 32.4 million, leaving the employment rate at 75.5 per cent.

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Prime Minister Theresa May will welcome the pay figures as a sign of economic strength as she faces intense pressure over Brexit.

Brexit-related labour shortages are becoming evident with 132,000 fewer European Union nationals working in Britain than a year earlier. The record decline was driven by citizens of eight of the ten countries that joined the EU in 2004.

In a sign of a tight labour market, the number of hours worked climbed by 1 per cent in the third quarter. Vacancies hit a record high in the three months through October.

Pay is rising fastest in the private sector (3.3 per cent versus 2.8 per cent for government workers) but easing austerity should see public sector start to catch up.

Wage growth including bonuses accelerated to 3 per cent.