Pound V euro: GBP tumbles lower against EUR as UK wage growth disappoints

The GBP/EUR pairing is now trading at around €1.108 after earnings growth was shown to have stagnated in the three months to July rather than accelerating as forecast.

Earnings both including and excluding bonuses grew 2.1 per cent in the twelve-week period, disappointing forecasts of an uptick to 2.3 per cent and 2.2 per cent respectively.

This has caused some concern following yesterday’s strong inflation data, as it shows that the squeeze on real incomes has worsened further.

Falling household budgets could curb consumer spending, meaning that the UK’s retail and service industries may see activity slow further in the coming months.

Although this raises concerns over the UK’s economic outlook, the ensuing pound weakness has been curbed thanks to the expectations that the Bank of England (BoE) will soon be forced to combat surging price growth by tightening monetary policy.

Data yesterday revealed that overall price growth returned to Mrs May’s four-year high of 2.9 per cent during August, while core inflation struck a six-year high of 2.7 per cent.

If interest rates are raised in the near-term, the squeeze on UK consumer spending is likely to weaken in the short-term, making the current softness a tempoprary hiccup rather than a peristent trend.

If the Bank of England should signal after its moentary policy meeting tomorrow that it will continue to keep monetary policy loose for some time then the outlook for the economy will worsen and GBP/EUR could fall further.

Other data showed a stronger-than-expected rise in employment, which saw the unemployment rate fall to 4.3 per cent against expectations of a hold at 4.4 per cent.

However, experts have warned that much of this growth is due to the so-called ‘gig economy’ and that robust hiring suggests firms are having to take on more workers as they are still struggling to achieve higher productivity.

Director of Research at Lancaster University’s Work Foundation Professor Geraint Johnes said: “the rapid rise in employment suggests that productivity growth remains hard to come by, and this will continue to put limits on pay growth.”

Hargreaves Lansdown Senior Economist Ben Brettell also raised concerns regarding productivity.

He said: “The only sustainable driver of real wage growth is increasing productivity – and in this respect the UK continues to lag behind its developed-world counterparts, notably the US and Germany. 

“Unless a solution to this productivity puzzle is found, a meaningful improvement in living standards could be some way off.”

The poor UK data has allowed a soft euro to advance, with EUR elsewhere unable to benefit from solid domestic data.

Finalised German consumer price index figures have held steady on earlier estimates, Eurozone employment data for the second quarter has met forecasts and Eurozone industrial production statistics for July have clocked in broadly in line with projections.

European Commission President Jean-Claude Juncker said today: “The wind is back in Europe’s sail.”