The pound rose on Wednesday following data that showed the shortfall in real wages continued to narrow in November.
While average earnings growth including bonuses remained at an annual rate of 2.5% in November, consumer prices have fallen from their 3.1% peak in November to 3% in December.
Meanwhile, average earnings growth excluding bonuses rose to an annual rate of 2.4% in November, up from 2.3% in the prior month, indicating that underlying wage growth appeared to be improving.
Hawks see further rate rises
"With surveys suggesting recruitment difficulties are building and the latest pay settlements surveys also strong, a further acceleration in wage growth is in prospect," said Paul Hollingsworth, senior UK economist at Capital Economics.
"As a result, we continue to think that the Bank of England's monetary policy committee (MPC) will hike rates three times this year."
James Athey, investment manager at Aberdeen Standard Investments, said: "The small positive surprise in today’s UK earnings data goes some way to justifying the Bank of England’s recent hawkish shift.
"The combination of such low unemployment, OK wage data and a booming global economy will embolden the Bank to continue to raise rates steadily."
Less hawkish views
Other's were less hawkish. Tara Sinclair, economist at jobs website Indeed, said: "Today’s modest increase in average salaries - up just 2.4% on the same time last year - means real wage growth remains tantalisingly out of reach for millions of Britons.
"Ten months on from the triggering of Article 50, the wage-sapping surge in inflation is a side effect of the fall in the pound, and the steady erosion of employers’ confidence may be due to the uncertainty triggered by Brexit.
“But the roots of Britain’s productivity problem - which is the underlying reason for the slow wage growth and a serious speed bump for the economy - run deeper and cannot be blamed on Brexit alone.”
Chris Williamson, UK economist at IHS Markit, added: "Pay growth continues to run below inflation, squeezing consumer spending power and damping households’ views on their financial wellbeing in January.
"Under such conditions, it seems likely that the recent disappointing consumer spending trend will persist into 2018, restraining economic growth."
Employment in the three months to November remained at a record high, leaving the annual rate of unemployment at 4.3% in November, the same as in the previous month and matching market forecasts.
Data also showed, however, that vacancies were at an all-time high, indicating employers in some sectors were struggling to find labour.
The sectors with the highest vacancy rates were those with relatively high levels of migrant workers, said Heather Rolfe at the National Institute of Economic and Social Research.
She added: “This reflects what employers who have engaged in our Brexit research say they are experiencing on the ground – that they are losing some EU migrants and finding it more difficult to recruit both British and EU workers.”
The pound appeared to get a boost from the data and rose 0.34% to €1.1421 against the euro and was up 0.7% to $1.4101 against the dollar.
The news failed to buoy UK stocks, however, and the FTSE 100 index was down 0.25% at 7,711 in late morning trade in London.