UK Earnings Move Higher, But Not By Enough To Matter

Earnings trends: UK average earnings (including bonuses) rose economy-wide in June. But the private sector saw earnings drop by 1.1%. Over three-months earnings are falling on both measures, over six months a small rise is in place; over 12-months an even weaker pace of advance is in play.

What those trends mean: As the Yr/Yr pace of overall earnings has dropped, become volatile and edged higher, inflation has risen, become volatile and begun to edge a bit lower. Still, since 2008 with a few minor exceptions that can be chalked up to volatility, real earnings have been dropping. From 2008 onward, real earnings are eroding; currently they are off by 1.3% Yr/Yr. Thus earnings, the largest source of consumer incomes, are not keeping pace with inflation. And that does not bode well for consumer spending trends.

Disparate dynamics in the UK - With such disparate dynamics in place it is no wonder that the BOE Policy Committee is having disagreements on what to do. In its recent deliberations we are informed that there remains a disagreement among committee members over what to do next, even though the committee stood behind the previous month's decision to stand pat. Monetary Policy Committee member Andrew Sentance continues to call for a 25 basis point rate hike (for the third month running), minutes of the BOE's August 4-5 meeting now show. But the majority of the Committee continues to think it is be best to keep interest rates on hold and maintain the central bank's 200 billion pound asset purchase scheme because of significant risks on both sides of the inflation outlook; note they said 'both sides'.

Curiouser and curiouser...policy splits amid unusual circumstances - The BOE has a policy split just as does the Federal Reserve in the US. Central banks are torn between their main mandate (or 'sole' mandate) to pursue price stability and a usually secondary mandate but currently one that has risen in ranking (at least implicitly); that is the mandate to maintain market liquidity and financial stability. Nothing but so dire a risk would dissuade most central bankers from what most see as their main mission of inflation fighting/price stability (even though the Fed's mandate may be perceived as a bit mixed on this score). Still, it gets even more complicated than that. The price stability mandate is usually thought of as a mandate to keep inflation down; it is an unusual circumstance for a price stability mandate to be employed to keep markets liquid. And perhaps a bit more unusual to employ such an argument with inflation having been in a persistent overshoot of the central bank's inflation ceiling, as it has been in the UK. But such are the times. In the UK growth prospects are still a bit uncertain despite a good deal of government/central bank intervention, complicated by newly adopted fiscal austerity measures, and by a still somewhat lofty (over the ceiling) pace of inflation.

UK (Great Britain) Earnings
All Seas. Adj.	Jun-10	May-10	Apr-10	3mo	6-mo	12-mo
Avg Earnings:All	Level in Month			Avg in Period
All	140.9	140.7	140.8	141.5	140.4	139.5
Private	139.4	139.8	139.7	140.5	138.9	138.2
Change in %	%Change in MO			% Change over period: AR
ALL	0.6%	-0.3%	-7.6%	-7.3%	2.2%	1.9%
Private	-1.1%	0.3%	-8.4%	-9.2%	2.9%	1.5%
Real Earnings%	%Change in MO			% Change over period: AR
ALL	0.2%	0.4%	-9.5%	-8.9%	-1.2%	-1.3%