Zhitong Financial App learned that the UK's wage growth rate is at a record high, highlighting the Bank of England's concern that the central bank has not yet broken the wage-price spiral, thereby exacerbating inflation across the economy. Average salaries excluding bonuses rose 7.8 percent year-on-year in the three months to June, according to data released Tuesday by the British statistics department. That was the highest level on record in 2001 and up from the previous revised upward reading of 7.5 percent, which economists expected to be 7.4 percent.
Figure 1
It is understood that the Bank of England is worried that soaring wages will push up prices across the economy. Policymakers led by the central bank's governor, Andrew Bailey, said further signs of those pressures could prompt another rate hike. The pound extended gains after the data as traders bet that the Bank of England will have to tighten policy further. The market has fully priced in the expectation of a 25 basis point rate hike next month and another 50 basis point tightening by March, which would bring the BoE's benchmark rate to 6%.
Roger Barker, director of policy at the American Institute of Directors, who represents company executives, said: "The wage hike shows no signs of abating. The concern for businesses is that this could lead to persistently high inflation and high interest rates. ”
These data are the first of two batches of economic data to guide the next interest rate decision of the Bank of England on September 21. Investors have almost completely priced in expectations that the Bank of England will raise its benchmark interest rate by 25 basis points to 5.5%, which would be the highest level since early 2008. But after falling headline inflation reported last month, the risk of further rate hikes next month has diminished.
Economists expect UK inflation to fall again in July data released on Wednesday. The UK consumer price index is expected to slip to 6.7%, the lowest level since the start of 2022, but still more than three times the BoE's 2% target.
The UK job market has loosened
Separately, the UK Statistics Office said there were some new signs of cooling in the labour market, with the UK unemployment rate unexpectedly rising to 4.2% in the three months to June, the highest level since July 2021, compared to just 3.5% in August 2022. In addition, inactivity in the market fell by 0.1 percentage points to 20.9% in the three months to June as more people returned to the job market; Job vacancies fell by 66,000 to about 1 million, the 13th consecutive decline.
Figure 2
Even so, the UK labour market remains tight by historical standards, forcing companies to raise wages to attract and retain workers. Meanwhile, Britain has suffered its most strikes since the 80s, with workers on strike in search of higher wages.
Ruth Gregory, deputy chief economist at Capital Economics, said: "The cooling of labour market conditions has not led to a slowdown in wage growth. This suggests that the BoE has more work to do and supports our view that the bank will raise interest rates from 5.25% to 5.50% in September. A lot depends on the release of the next labor market data and two CPI inflation data. ”
In addition, the main factor driving the labor market is the labor shortage. According to data on Tuesday, there are 144,000 fewer people employed in the UK than before the pandemic, leaving little room for the economy to grow without triggering inflation.
Including bonuses, UK total compensation rose 8.2% in the quarter to June, the strongest on record, except for pandemic-affected periods. Last month's data was also revised upwards.
Meanwhile, one-off payments to NHS staff also drove the growth. The latest data does not include recent agreements with nurses and teachers.
Britain's financial, services and public sectors are driving up wages
Figure 3
As the Bank of England is closely monitoring developments in private sector pay, the rate hike will exacerbate inflation concerns. Bank of England Governor Bailey has said policymakers could raise interest rates again if there are more signs of sustained inflation, with the job market being their biggest concern.
It is understood that the decline in the UK labor market inactivity rate is mainly attributed to more 50-64 year olds returning to the labor market, who retired in droves during the pandemic, but said that the number of people who lost their jobs due to long-term illnesses remained at a record high.
The overall rise in wages comes amid signs that inequality is rising at a time when a large number of public sectors are embroiled in strikes.
The silver lining seen in the report is that the tightening of living standards in the UK is starting to ease somewhat. Inflation-adjusted normal wages fell by 0.6%, one of the smallest declines since the start of the pandemic-era inflation shock.
However, Ben Harrison, director of the Lancaster University Work Foundation, said: "Record wage growth was driven by financial and business services. For most workers, the cost-of-living crisis is far from over. ”