Surging labor market boosts UK economy ahead of Brexit

Staff reporter(wp/reuters):::
British workers saw their pay grow at the fastest pace in over 10 years and employment jumped much more than expected in the three months to the end of November, contrasting with other signs of an economic slowdown ahead of Brexit.

Average weekly earnings, including bonuses, rose by 3.4 percent on the year, the Office for National Statistics said on Tuesday, the biggest rise since mid-2008 and beating the average forecast of 3.3 percent in a Reuters poll of economists.

After adjusting for inflation, total pay rose at the fastest pace in two years, but Britons are still earning less in real terms than they were before the financial crisis.

The ONS said the number of people in work increased in the three months to November by the largest amount in seven months, although it is unclear if businesses will maintain hiring at this pace as uncertainty around Brexit mounts.

With little time left until Britain is due to leave the EU on March 29, there is no agreement in London on how it should exit the world’s biggest trading bloc, and a growing chance of a ‘no-deal’ exit with no provision to soften the economic shock.

“The UK’s robust labor market continues to provide much-needed buoyancy for the economy in a period of stress,” said Tej Parikh, senior economist at the Institute of Directors.

Sterling rose against the euro and the U.S. dollar on the figures. Although the labor market is regarded as a lagging indicator of the economy, Tuesday’s figures are likely to hearten Britain’s economic policymakers.

The International Monetary Fund predicted modest growth for Britain’s economy this year and - broadly in line with France and Germany - if a no-deal Brexit can be avoided.

Assuming a relatively smooth transition, the Bank of England has said it will need to raise interest rates gradually to offset inflation pressures from the labor market.

With unemployment at close to its lowest level since the 1970s at 4.0 percent in the three months to November, employers have begun raising pay for staff more quickly.

Excluding bonuses, earnings rose by an annual 3.3 percent in the three months to November, matching October’s pace, the ONS said.

The number of people in work rose by 141,000 in the three months to November, above all forecasts in a Reuters poll that had pointed to a rise of 85,000 and taking the proportion of working-age Britons with a job to a record 75.8 percent.

Separate figures from the ONS showed British government borrowing came in higher than expected in December at 2.976 billion pounds ($3.8 billion), compared with forecasts for borrowing of 1.9 billion pounds, largely reflecting higher European Union budget contributions.