Wage Growth Means Inflation Rate Rises and FTSE Falls

Published / Last Updated on 16/10/2018

Wage Growth Means FTSE FallsToday, the Office for National Statistics (ONS) released its latest employment report.  The key headlines are:

  • Pay for June/July/August rose by 3.1% compared to the same 3 month period in 2017
  • This is fastest rate of pay growth for over 10 years
  • Unemployment fell by 47,000 to just 1.36 million.

In their report, ONS spokesperson David Freeman suggests: “monthly pay packets grew at their strongest rate in almost a decade” adding that with inflation taken into account, the real rate of wage growth is still subdued.

Impact of Wage Growth and Low Unemployment

The impact of lower unemployment and high wage growth is that more people are working and spending that, in combination with a weaker pound, will drive prices up i.e. inflation will likely go up.

Speculation will inevitably rise that interest rates will go up sooner rather than later to curb inflation.  Result:  the pound with strengthen, as it has today.

A strong pound means lower profits from larger companies that earn profits overseas when they convert those profits back into sterling.  Result: FTSE 100 falls (and indeed it has this morning).