In the final full month before the 2017 Autumn Budget, published data showed a slight acceleration in GDP growth while inflation reached its highest level in over five years. Real average earnings continued to fall, although new data showed earnings were increasing above inflation for the lowest-paid employees.
Growth continued at a similar rate to that seen in the first half of 2017
The publication of the preliminary estimates of UK economic growth in the third quarter of 2017 could be seen in both a positive and a negative light.
On the one hand, the 0.4% growth that was seen in this quarter was higher than the 0.3% growth seen in the preceding two quarters. On the other hand, this marked a continuation in growth at a similar rate to that seen in the first half of the year, a period that the Office for National Statistics (ONS) described as a “noticeable slowdown” from the higher rates seen in previous years.
Inflation keeps rising and real earnings keep falling…
In September CPI inflation rose to 3.0%. Although this was only a slight increase from August’s rate of 2.9%, it meant that inflation reached its highest level for over five years.
Thus, it was not especially surprising that the latest labour market statistics showed that the growth in average earnings was less than inflation, as has also been the case in previous months.
Although average weekly earnings in the three months to August 2017 were higher by 2.2% than the same period in 2016, after taking inflation into account earnings were 0.5% lower.
…but average earnings have increased above inflation for the lowest-paid employees
The ONS published new statistics in October that provided a detailed picture of earnings in 2017. As seen in our recent blog post “Pay in 2017: five things we’ve learned”, these statistics showed that, after inflation, average weekly pay for full-time workers is around £34 lower now than in 2008.
Although earnings fell for workers on middle levels of pay between 2016 and 2017, the National Living Wage helped boost earnings among lower-paid employees.
The main beneficiaries were part-time workers. For someone on the cusp of the bottom 10% of part-time workers (the 10th percentile), hourly pay increased by 5.8%: from £7.09 in 2016 to £7.50 in 2017 – after inflation, that’s a 3.1% increase.
The effect was visible for full-time workers too. Hourly pay at the 10th percentile increased by 3.7%: from £7.92 to £8.21 (a 1.0% rise after inflation).
And unemployment figures continued to fall
The number of people who were unemployed fell once more in the three months to August 2017, with levels falling by more than 200,000 from a year previously.
A big decision on interest rates
The continued rise in the inflation rate, the slight rise in GDP growth and the continued fall in unemployment all led to increased speculation that interest rates would soon by raised by the Bank of England’s Monetary Policy Committee (MPC).
The MPC left interest rates unchanged at its September meeting, but a majority of members thought that if economic conditions followed the path expected, interest rates should rise “over the coming months”.
The results of the next vote will be published at noon on Thursday 2 November, and the Interest Rates and Monetary Policy indicator page will be updated shortly after the decision is made.
This article was originally published in the November edition of the Library’s Economic Indicators paper. The monthly publication provides a snapshot of key economic data covering: growth, labour market, finance, borrowing, trade, exchange rates, business, retail and housing. Individual pages are updated through the month as new data come out.