By Julia Kollewe
LONDON (MktNews) - UK headline average earnings growth is expected to have slowed in December as the large bonus payments made a year earlier because of the millennium are not repeated, analysts said Tuesday.
The median forecast calculated from a survey by Market News International sees the headline average earnings rate (a 3-month moving average) dip to 4.1% in December from 4.2% in November. Forecasts range between 4.0% and 4.3%.
Headline average earnings growth remained steady in November as expected even though the single-month figure picked up due to higher wages in the manufacturing and public sector.
In December, base effects may have lowered the headline rate slighty because of generous bonuses being paid at the turn of the Millennium.
"The labour market report on Wednesday will probably show more evidence of a slower pace of labour market tightening. Average earnings growth could also show some signs of softening as some of the effects of last year's end-year bonus payments drop out of the calculation," said Robert Jukes, UK economist at CSFB.
Jonathan Loynes, UK economist at CapitalEconomics, reckons the single-month earnings rate probably dropped sharply to 3.6% in December from 4.4%, "as the impact of the whopping millennium-inspired 2.7pp (bonus) addition to earnings growth in December 1999 drops out of the index." This would lead to the headline rate dipping to 4.0% in December.
Meanwhile, David Page, UK economist at Investec thinks the December ex-bonus figure may stick at a rise of 4.6%, the same as in November.
But analysts also noted that basic pay settlements rose in January and their progress will surely be closely watched by the Bank of England. Pay consultants IDS reported that most pay deals monitored in January were worth between 3.5% and 5%, up from December.
Analysts say the increase in basic settlements will become more visible in the earnings numbers when the favourable millennium distortions drop out of the calculation in the spring.
Investec's Page also questioned whether 4.5% is still the appropriate speed limit for earnings. "If the UK economy is benefiting from a US-style productivity improvement, the pace of average earnings growth consistent with the inflation inflation target should rise. For example a 'trend' growth rate of 2.75% per annum would enable earnings to rise by 4.75%."
Meanwhile, the unemployment data indicate that the labour market may finally be turning the corner as the falls in the claimant count have been becoming smaller in recent months and employment growth also appears to have stalled now.
Claimant count unemployment fell by only 2,600 on the month in December and the previous month's decline was revised to 3,400 from 5,300 previously. For January, the MNI median forecast predicts a small fall of 4,000.
UK economist at Lehman Brothers Michael Hume was again alone in predicting a small rise in unemployment of 5,000.
The labour market data will be released on Wednesday, December 17, at 09:30 GMT.