Surging employment and weak growth dealt a blow to the UK’s productivity performance on Wednesday, raising the threat of interest rate hikes from the Bank of England.
Unemployment is at 40-year lows following a 167,000 jump in the number of people in work in the three months to December. But the latest rise in employment came at a time of slowing growth, pushing productivity into negative territory.
Combined with the sharpest wage growth in a decade, up 3.4% year on year, analysts worry that rising pay will soon feed into higher inflation. Financial markets are bearish on rates this year due to Brexit uncertainty, with a move from the monetary policy committee not expected until next year.
But Capital Economics said the Bank could act sooner than financial markets predict. “We think the MPC could hike rates twice in the second half of the year if a Brexit deal is struck,” its UK economist Andrew Wishart said.
With Britain due to leave the EU next month, and still no clarity on whether it will have a transition deal to smooth the shock, many companies have cut investment in equipment, making them more likely to hire workers.
