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UK pay growth accelerates in Q1, boosting August rate hike chances

Pay for U.K. workers grew at its fastest rate since mid-2015 in the three months to March, and unemployment held steady at its lowest level since 1975, boosting the chances of an August interest rate increase by the Bank of England.

The unemployment rate was 4.2% in the first quarter of 2018, in line with expectations and down from 4.6% a year earlier, according to the Office for National Statistics.

Average weekly earnings, excluding bonuses, increased by 2.9% in the first quarter from a year earlier, up from 2.8% growth in the three months to February. Including bonuses, average weekly earnings rose by 2.6% from a year earlier, slightly below expectations of a 2.7% increase and down from 2.8% in the three months to February.

In real terms, average weekly earnings, including bonuses, increased by 0.4% but remained unchanged after excluding bonuses.

"Given that policymakers have cited rising pay pressure as a key justification for tighter monetary policy, we think markets are underestimating the risks of a summer rate rise," James Smith, developed markets economist at ING Research, said.

The employment rate reached its highest level since 1971, rising to 75.6% in the first quarter from 74.8% a year ago. The number of people in work increased by 197,000 from the previous quarter and by 396,000 from a year earlier.

The British pound was down 0.04% against the U.S. dollar as of 5:52 a.m. ET.