Photographer: Chris Ratcliffe/Bloomberg

Wage Pickup Is Very Bright Spot in Britain's Economic Outlook

"Some of the more pessimistic stories have been over-exaggerated"

The U.K. economy isn't as bad as all that.

Compensation rose 4.7 percent from a year earlier in the second quarter, the biggest jump since 2007, data Wednesday showed. With inflation stuck stubbornly at zero, British consumers' spending power is stronger than ever. 

It's a partial counterpoint to commentary lately pointing to softer British economic growth, with the slowdown in China and related emerging market turmoil fostering a gloomier view. Bank of England Chief Economist Andy Haldane said risks to inflation are "skewed squarely and significantly to the downside," so the case for raising rates is still some way off. 

``The pay packet has been rising, and overall, that supports a fairly solid consumer demand picture going forward,'' said David Tinsley, an economist at UBS in London. ``Some of the more pessimistic stories on the U.K. economy of late have been over-exaggerated.''

The story's reinforced by a pickup in gross domestic product per head, another gauge of wealth. It's now at 6,887 pounds ($10,500), 0.6 percent higher than its pre-recession peak in early 2008.

The picture lends a boost to Bank of England officials wary of inflation pressures building further out on the horizon -- the strength of wage gains has already been enough for Ian McCafferty to revive his call for higher interest rates. So far none of his colleagues have joined him, not even Martin Weale. He and McCafferty had voted for rate increases last year, but dropped their call in January as inflation headed south. 

"Pay is picking up, and for some MPC members who are already there or who have been concerned about this, such as Weale or McCafferty, this is just further evidence for them that the domestic economy remains strong," said Tinsley, a former Bank of England official. 

 

Before it's here, it's on the Bloomberg Terminal. LEARN MORE