UK earnings growth picking up and likely to continue

As UK inflation is surprising slightly to the downside, the earnings growth is found to be gathering steam. This factor should make itself felt in the services component of inflation which is more domestically determined. 

Growth in regular pay rose from 2.7% to 2.8% 3mth yoy whereas growth in total pay including bonus payments jumped from 2.7% to 3.2%. This is one of the most crucial variables to monitor with regard to the MPC's policy path.

This acceleration, whilst probably exaggerated a little in the short term, is likely to be the longdelayed response to the closing of the output gap. As such, it will be reinforcing the case for more serious consideration of the first rate increase, as MPC member Martin Weale in particular has been highlighting. 

However, it is not earnings per sector that affect inflation, rather it is unit labour costs and they remain well-behaved because there has finally been some pickup in productivity, says Societe Generale.