UK wages grow by better than expected 2.1% – as it happened

• Cost of living squeeze eased slightly as wages grow by 2.1%
• Unemployment rate falls unexpectedly to 4.4%
• Number of people on zero hours contracts falls
• Pound recovers after wages data
• Eurozone GDP revised higher

2.05pm BST

The UK cost of living squeeze has unexpectedly eased, albeit only marginally.

According to the latest data from the Office for National Statistics, average weekly earnings grew by 2.1% year on year in the three months to June, much better than the 1.8% analysts had been forecasting. But, even with inflation holding steady at 2.6% rather than rising, that still means a 0.5% fall in real wages.

1.53pm BST

Some below par figures from the US housing market.

Housing starts fell by 4.8% in July, compared to expectations of a 0.4% increase. June's figure has been revised down from an 8.3% rise to a 7.4% increase.

US Housing starts & permits miss expectations...

Starts: 1155k vs exp 1220k
Permits: 1223k vs exp 1250k

US July housing data: housing starts and building permits both fall for July, could be seasonal and summer related...

1.18pm BST

More on the UK wages squeeze:

Continuing pay falls come with avg weekly earnings still 15 below peak. OBR forecasts suggest point of recovery now well into next decade pic.twitter.com/FzJK7B3nDl

Pay squeeze is being felt across the economy; pay now falling in around 80% of sectors pic.twitter.com/08NNmCYvw9

1.05pm BST

UK productivity keeps falling, according to the second quarter jobs and wages data.

Output per hour worked fell 0.1% quarter on quarter after a 0.5% decline in the first three months of the year. Howard Archer, chief economic advisor to the EY ITEM Club, said:

The further relapse in the second quarter's productivity fuels concerns over the UK's overall poor productivity record since the deep 2008/9 recession. This even allows for the possibility that there may well have been an appreciable cyclical element in the drop as GDP growth was slow in the first half of 2017 and business seemingly remained keen to employ amid potential shortages of labour. Given the uncertain economic and political outlook, it may be that several companies are trying to meet extra work by taking on labour rather than commit to investment. Persistent low earnings growth is facilitating labour growth. Productivity had seen growth through 2016, but it was hardly dynamic.

The further second quarter dip in productivity is all the more disappointing as the UK has a lot of catching up to do on the productivity front as it has been markedly lagging its performance before the 2008/9 downturn.

Many of the new jobs that have been created are in less-skilled, low-paid sectors where productivity is limited.

The economy's past prolonged weakness and financial sector problems may have hurt productivity through under-investment and an inefficient allocation of resources. There is particular concern that an extended inability to access capital held back innovation and investment by smaller companies.

12.49pm BST

Less noticed in today's labour market stats is that the growth in the number of EU migrants in work has fallen to lowest point since 2010 pic.twitter.com/HBqNWZHS5h

11.42am BST

The jobs and wages data increase the chances of a UK rate rise before too long, reckons Kallum Pickering, senior UK Economist at Berenberg:

For the UK monetary policy outlook, today's upside surprise for labour demand and acceleration in wage growth matters far more than yesterday's downside surprise for headline inflation (2.6% in July versus an estimated 2.7%).

Unemployment fell to 4.4% in June (4.5% expected) while weekly earnings excluding bonus accelerated to 2.1%, for the third month in a row, in line with our expectations but above the consensus (2.0%). Because monetary policy works with a lag, interest rate setters at the Bank of England (BoE) focus more on what the inflation picture will look like in a year or two.

11.22am BST

Back with the UK data, and here is the chancellor's reaction to the unemployment numbers (no mention of wages so far, though):

Lowest unemployment rate for 42 years is good news for every family. We are building an economy that works for everyone.

11.20am BST

Euro zone Q2 y/y growth estimated to beat UK by 0.5pp, most since Q3 2011

Average relative outperformance since euro launch is 0.5pp for UK pic.twitter.com/1U3dSOvuck

10.52am BST

The eurozone economy appears to be firing on all cylinders, said economist Bert Colijn at ING Bank:

Eurozone annual GDP growth has been revised upwards to 2.2% year-on-year in the second estimate. While growth could come down a touch in the second half of the year, we expect growth to come in at 2% for 2017.The quarterly growth rate was unrevised at 0.6% quarter on quarter, confirming the robust growth pace for the Eurozone in the first half of the year.

No breakdown by components has been released as of yet, but some of the individual countries show the economy is firing on all cylinders right now. Domestic demand is improving significantly, while exports continue to grow despite uncertainty among trade partners and an appreciating euro. While some countries remain laggards in the eurozone, the good news at the moment is that poorer performers are also exceeding expectations. Italian growth in the second quarter lags the Eurozone average, but the 1.5% year on year growth did surprise analysts.

Among the larger economies, the Dutch economy grew at an extraordinary pace of 1.5% quarter on quarter, a rate more commonly seen in booming developing economies. Spain also continues to record tremendous growth rates as the second quarter came in at 0.9% quarter on quarter, accelerating from 0.8% in the first quarter.

The countries that experienced a deeper real estate crisis all seem to be recovering quite robustly at the moment as Irish growth is currently at 6.6% year on year, although figures for the second quarter have yet to be released.

10.45am BST

More signs of strength in the eurozone economy.

On an annualised basis, the region's GDP grew by 2.2% in the second quarter, better than the original estimate of 2.1% and higher than analyst forecasts.

Strong economic performances from Germany, France and Spain have contributed to the eurozone's GDP being exactly where ECB president Mario Draghi would like it.

Draghi has made it clear that he will refuse to budge on interest rates for the foreseeable future - a policy that appears to be working well.

Q2 2017 is 17th consecutive quarter of #GDP expansion; 3rd consecutive quarter of growth of #GDP >/= +0.5% in #euro area

Particularly strong #GDP growth in #CzechRepublic (2.3%) #Sweden (1.7%) #Netherlands (1.5%) #Latvia (1.3%) #Austria (0.9%), #Spain (0.9%)

10.23am BST

More reaction to today's UK data:

10.11am BST

Here is our report on the jobs and wages figures from economics editor Larry Elliott:

Pay growth in the UK has started to pick up amid signs that the steady fall in unemployment may be boosting the bargaining power of workers.

Figures from the Office for National Statistics showed that earnings growth in the three months to June was 2.1% higher than in the same months of 2016 - up from 2.0% in the three months to May.

Related: UK pay growth picks up as unemployment rate falls again

10.07am BST

And here is the wages growth data:

Some positive news on the UK's cost of living squeeze from the ONS today, with average earnings growth beating expectations by growing 2.1% year-on-year in the three months to June. When inflation is taken into account, however, real wages still fell by 0.5% in the three month period...

There is some cause for optimism that the squeeze on household finances could come to an end later this year, though ultimately the light at the end of the tunnel could be provided by falling inflation rather than rising wages. Yesterday's CPI numbers showed inflation remaining at 2.6% in July, and the hope is this will fall back towards the 2% target as the Brexit-induced weakness in the pound starts to fade.

10.01am BST

The unemployment rate of 4.4% is the lowest since March-May 1975:

9.48am BST

Sterling has edged higher after the stronger than expected wages growth figures.

The pound is now up 0.19% against the dollar at $1.2892, and against the euro it is 0.21% higher at a1.0986. Ipek Ozkardeskaya, senior market analyst at London Capital Group, said:

The UK wages growth surprised on the upside, as the British households saw their average earnings improved by 2.1% (3 month-on-year) versus 1.8% anticipated by analysts. Still, consumer prices rose by 2.6% over the same month. Although, the divergence between the price and wages growth will likely continue weighing on British households' purchasing power and cool down the inflationary pressures, the Bank of England (BoE) hawks will remain alert on the economic data as long as the rates remain at the historical low levels. The pound-bulls came back in charge following the solid wages growth.

9.40am BST

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9.39am BST

More detail on the jobless numbers.

9.32am BST

Breaking:

Better news for householders, UK average earnings have come in higher than expected.

9.22am BST

Mario Draghi, president of the European Central Bank, does not plan to give any new monetary policy statements at the gathering of bankers at Jackson Hole in the US at the end of the month.

European shares are higher today after a Reuters report said that #Draghi will eschew a new policy message at Jackson Hole next weekend

This reinforces our view that the ECB is going to stagger the taper and normalisation process as much as possible so as to avoid a taper tantrum or anything of that nature. We will continue to favour selling rallies in EURUSD for the next month or so...At the July rate decision Draghi said announcements (on policy) would come in the autumn. The term autumn as opposed to a specific date gives the ECB flexibility.

9.18am BST

With some nervousness ahead of the UK wages and jobs data, sterling slipped to a ten month low against the euro before recovering slightly.

The pound was trading at 91.44p a euro before edging back to 91.07p, a 0.12% decline. A Reuters report said dealers were speculating on a weaker than expected wage growth figure.

9.10am BST

The Italian economy grew by 0.4% in the second quarter, the same rate as the previous three months and in line with expectations.

Domestic demand offset a weakening trade position, and analysts said the figures suggested the country would meet its 1.1% annual growth target.

Italian GDP QoQ (Q2): 0.4% vs 0.4% expected, prior 0.2%.
Italian GDP YoY (Q2)): 1.5% vs 1.4% expected, prior 0.8%.

8.52am BST

Over in Europe, there have been some better than expected economic growth figures from the Netherlands:

#Netherlands: Powerful Q2 GDP growth. +1.5% QoQ vs +0.6% est, +0.4% prev; +3.3% YoY https://t.co/GS6Mh94CxL #ECB #Nederland pic.twitter.com/DWQVnE52mS

8.41am BST

Here's a look at what is expected from the imminent UK data:

1. UK labour market statistics out today. And employment growth is expected to rumble on. Consensus is for a gain of 97,000 on Q1. pic.twitter.com/GiWDuIDOoJ

2. Earnings growth (excl. bonuses) expected to hold steady at 2%y/y, but that's not enough to keep up with rising consumer prices. pic.twitter.com/A6ka4as5lN

Following yesterday's unchanged, if still high, UK inflation reading attention turns to the latest jobs report and, specifically, the state of the country's wages.

Including bonuses the average earnings index for the 3 months to June is expected to remain at 1.8%, meaning real wages are continuing to suffer under the tyranny of UK inflation (and explains Thursday's expected fall in retail sales). Elsewhere in the jobs report the unemployment rate will likely stay at 4.5% for the second month in a row, while the claimant count change - the most up to date figure - is forecast to shrink from 5.9k to 3.2k.

8.30am BST

Away from Europe for the moment, and ratings agency S&P has confirmed its view on Brazil after president Michel Temer survived a vote related to corruption charges. S&P said:

Since we placed our ratings on Brazil on CreditWatch with negative implications in May, the political landscape is somewhat more settled as President Temer survived a vote--by the Federal Electoral Court (TSE) in June and by Congress in August--related to corruption charges.

Meanwhile, the economy appears to have stabilised despite fluid politics, Congress passed a labor reform in July, and the government remains committed to advancing some pension reform, containing expenditure growth to minimise deviation from its primary fiscal targets, and advancing its active microeconomic reform agenda.

8.07am BST

The week's stock market revival is continuing as investors put aside concerns about North Korea and indulge in a little bargain hunting.

The FTSE 100 is up 0.5%, Germany's Dax has opened 0.6% higher and France's Cac has climbed 0.4%.

8.03am BST

Wage growth is unlikely to pick up to 3% next year as the Bank of England is forecasting, says ING foreign exchange strategist Viraj Patel, while the pound is likely to continue to come under pressure:

The combination of lacklustre UK economic data and political noise has served to highlight the pound's vulnerabilities this week and we expect these factors to further weigh on the currency.

The 'hot, but not too hot' core inflation release yesterday has all but silenced any 2017 Bank of England rate hike calls; markets see a a20% chance of a 25bp rate increase by year-end.

7.50am BST

FTSE 100 expected to open +17 - early calls - BALFOUR BEATTY UP 2%, ADMIRAL DOWN 1%, CLS HOLDINGS UP 2%.

7.39am BST

Stock markets are expected to continue their recent mini-revival, as last week's turmoil amid the tensions between North Korea and the US fade further. (President Trump of course has other matters closer to home to deal with at the moment).

Here are the opening calls from IG:

Our European opening calls:$FTSE 7399 +0.20%
$DAX 12201 +0.20%
$CAC 5147 +0.13%$IBEX 10498 +0.16%$MIB 21758 +0.16%

7.36am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Continuing evidence of Britain's cost of living squeeze is expected today with the latest wages and jobs data.

The most recent wages numbers saw weekly earnings excluding bonuses for June come in at 2%, up from 1.7% in May, an encouraging sign that we may have seen wages start to show signs of a rebound at a time when ILO unemployment is at and expected to remain at a 42 year low of 4.5%.

With employment levels at record highs any signs of a tighter labour market could well offer the pound some significant support which means that a strong wages number today could offer the Bank of England that "goldilocks" scenario of falling inflation and rising wages and potentially move the debate back to the timing of a possible rate rise.

The divergence between the price and wages growth will likely continue weighing on the real wages and cool down the inflationary pressures as a consequence. Under these circumstances, the Bank of England will be in a position to keep the interest rates at the current historical low levels for an extended period of time and walk the UK businesses through challenging Brexit times.