LONDON (Reuters) - British workers saw their pay grow more slowly than expected at the end of last year, official data showed on Wednesday, ahead of a likely squeeze on their living standards from higher inflation in 2017.
At the same time, the employment rate hit a fresh all-time high as the number of people in work rose in the three months to December having fallen in the two previous monthly reports.
Britain’s labor market remained strong in 2016 despite the referendum decision in June to leave the European Union.
The unemployment rate in the October-to-December period held at an 11-year low of 4.8 percent, the Office for National Statistics said.
But pay growth remains weak and Wednesday’s data showed that, when adjusted for inflation, the rise in earnings was the slowest since the three months to February 2015.
“With prices rising faster, real pay growth is now slowing down,” Frances O‘Grady, the head of Britain’s Trades Union Congress umbrella group, said. “This will be worrying for families whose have still not seen their living standards recover following the financial crisis.”
Sterling dropped to a one-week low after the release.
The data chimes with the Bank of England’s view that despite Britain’s strong economic growth, interest rates should remain at their record low level.
British inflation hit its highest level since mid-2014 in January at 1.8 percent and many economists think it will pass 3 percent this year. The BoE believes much of the increase is due to the temporary effect of sterling’s fall after the Brexit vote rather than a price-pay spiral.
The ONS said workers’ total earnings including bonuses rose by an annual 2.6 percent, slowing from 2.8 percent in the three months to November. Economists taking part in a Reuters poll had expected wage growth of 2.8 percent.
It was the first time that total pay growth had slowed since the three months to July.
A separate survey showed expectations among households about rising living costs over the next year were the strongest in three years.
In December alone, the ONS said total wage growth slowed sharply to 1.9 percent, its weakest pace since February, reflecting fewer bonuses paid than in December 2015.
Excluding bonuses, growth in earnings in the fourth quarter also slowed.
The number of unemployment benefit claimants fell by 42,400 to 787,400 in January compared with a revised fall of 20,500 in December. Economists had expected the number of claimants to rise by 800.
ONS officials said the claimant count series was volatile due to the continued roll-out of a new universal credit benefit system.
In a possible sign of how the Brexit vote and the subsequent fall in the value of the pound are affecting the attractiveness of Britain as a place to work for migrants, the ONS data showed the first fall in the number of people from other EU countries employed in Britain since the three months to September 2014.
In the last three months of 2016, the number of non-UK EU nationals in employment fell by 19,000, compared with a rise of 12,000 in the same period of the previous year.
The ONS said the figures were not adjusted for seasonal swings but it was the biggest fourth-quarter fall since records began in 1997.
The ONS said the data should be treated with caution and the first overall migration figures to cover the post-referendum period would be published on Feb 23.
Many employers say they are struggling to find suitable candidates to fill their vacancies and are worried that a reduction in foreign workers could aggravate the problem.
Writing by William Schomberg; Editing by Toby Chopra