UK basic wage growth hits record, adding to Bank of England’s worries
2023.08.15 03:23
© Reuters. FILE PHOTO: Construction workers work on a new apartment building under construction in Manchester, Britain June 1, 2023. REUTERS/Phil Noble/File Photo
LONDON (Reuters) -Basic wages in Britain surged to hit a new record growth rate, figures showed on Tuesday, adding to worries for the Bank of England about long-term inflation pressures even after 14 back-to-back increases in interest rates.
Official data showed some fresh signs of cooling in the jobs market with the unemployment rate unexpectedly rising to 4.2% from 4.0%, the highest since the three months to October 2021.
But the increase in basic earnings – the strongest in records data back to 2001 – represented further impetus for Britain’s high rate of inflation with many employers resorting to increased pay offers to retain or attract staff.
Annual pay growth including bonuses also accelerated, hitting 8.2%, the fastest outside the coronavirus pandemic period when government job subsidies distorted the data.
Sterling rose against the dollar and euro after Tuesday’s data.
Ruth Gregory, an economist with Capital Economics, said the wage data “suggests the Bank of England has a bit more work to do and supports our view that the Bank will raise rates from 5.25% to 5.50% in September, although a lot will depend on the next labour market release and two CPI inflation data releases.”
Pay growth looks set to overtake the rate of consumer price inflation which is forecast to have slowed to 6.8% in July in data due to be released by the ONS on Wednesday.
Markets saw a roughly 55% chance of the BoE’s benchmark rates hitting 6% in early 2024, up from their current level of 5.25%. On Monday, the chance of rates going that high stood at about one in three.
Governor Andrew Bailey said earlier this month that the rate of pay growth was “materially above” the central bank’s forecasts but the BoE also signalled it was getting close to pausing its run of interest rate increases.
Bailey and his colleagues may take comfort from some signals of a cooling in the labour market beyond the data on pay.
As well the surprise rise in the unemployment rate, the number of people in employment fell by 66,000 and job vacancies extended their run of falls to their lowest since mid-2021, also dropping by 66,000 on the quarter to 1.02 million.
However, inactivity due to long-term sickness rose to a new record high, adding to the problems for employers seeking to fill job vacancies and adding to the pressure on pay growth.
