The UK wage Preview: With no-deal Brexit looking increasingly likely, the UK real pay increase is set to diminish

• The UK unemployment is expected to remain 4.1% in November after leaping off a 4-decade low of 4.0% in the p[revious month.
• The UK regular pay (excluding bonuses) is expected to rise 3.2% over the year in three months to October, confirming the strongest pay rise in a decade from the previous month.
• The UK total pay (including bonuses) is expected to accelerate to 3.0% y/y in three months ending in October after rising 3.0% in the previous months.
• Even with the UK wages rising, the Brexit uncertainty is weighing on Sterling that fell to a 20-month eventually resulting in higher UK inflation and lower real, inflation-adjusted wages. 

The aggregate picture of the UK labor market is expected to confirm a solid pickup with the unemployment near a four-decade low and UK wages rising well above the inflation rate, supporting the real, inflation-adjusted pay increase, the Office for National Statistics is expected to report on December 11.

Amid political uncertainty about the Brexit agreement, the UK business investment is slowing and Sterling is trading at the lowest level since April last year on the currency market. While no direct effect on the UK labor market is reported yet, eventually lower investment will result in a lower potential output of the economy and lower Sterling will eventually lead to higher import prices and higher inflation.

The regular pay (excluding bonuses) is expected to increase 3.2% over the year in the three months to October period, confirming the strongest pay rise in the last decade. 

At the same time, the total pay is also expected to accelerate to 3.0% y/y in three months ending in October, up from 2.7% y/y. Strong pay increases reported in the November UK labor market report are set to support Sterling on the currency market only temporarily as prospects of no-deal Brexit have become increasingly likely as the UK Prime Minister Theresa May canceled the UK parlia\mwent voting on Brexit deal on December 11 and rather opted for another round of discussions with the EU.  

UK regular pay growth rate, January 2005-September 2018

Source: Office for National Statistics