UK Wages Rise, Euro Inflation Slows

British workers are making more money as costs are growing at a lower rate in the Eurozone.

In the UK, earnings both including and excluding bonuses rose by 2.9% in the three months to July, above analysts’ expectations and at the fastest growth rate since 2009. According to the Office for National Statistics, workers are able to make more money in the UK.

British workers are making more money as costs are growing at a lower rate in the Eurozone.

In the UK, earnings both including and excluding bonuses rose by 2.9% in the three months to July, above analysts’ expectations and at the fastest growth rate since 2009. According to the Office for National Statistics, workers are able to make more money in the UK.

British spending power is also rising, thanks to a deflationary trend that is affecting the UK as well as the Eurozone. Yesterday, the ONS announced that the UK Consumer Prices Index flat lined in August, a deceleration from the 0.1% inflation rate that the UK saw in July.

Volatility in energy and food costs drove this disinflation. Excluding those costs and excluding alcohol and tobacco, core inflation was at 1% in August, although that is still a deceleration from the 1.2% inflation rate seen in July.

Analysts believe the Bank of England will continue to keep rates at 0.5%.  The rate has been set for several months and affirmed last week at a meeting of the UK’s central bank. Noting low inflationary pressures because of weakness abroad, the Bank of England decided to hold its inflation rate at current levels. “Developments since then have increased the risks to prospects in China, as well as to other emerging economies,” the Bank of England said, adding that “greater downside risks to the global environment merit close monitoring for any impact on domestic economic activity.”

The Bank of England also earmarked “robust real income growth, supportive credit conditions, and elevated business and consumer confidence” as drivers of growth in the UK.

European Inflation Weakens

In the Eurozone, inflation fell to 0.1% on an annual basis in August, half of the level seen in July in a trend that mirrors the fall in inflation in the UK. Similarly, the core CPI with food, energy, alcohol, and tobacco costs removed saw a 0.9% year-over-year rise in August, indicating most of the disinflationary pressure is coming from volatile commodity costs.

However, the weakness in both Eurozone and UK inflation, far below the 2% target eyed by most central banks, indicates little inflationary pressure coming from the European Central Bank’s quantitative easing program, which is designed to pump over a trillion euros of liquidity into the European banking system through a bond purchasing program.

European equities rose sharply on the news, with the German DAX rising over 1.3% in morning trading. American futures also edged upwards. Many analysts believe weak inflation will give Central Banks room for more accommodative monetary policies and encourage Federal Reserve chairwoman Janet Yellen.