Official figures show that UK wages increased at a much faster pace than anticipated and at an annual rate record in the three-month period ending June. These numbers are likely to confirm the Bank of England’s concern over inflationary pressures.
data released by the Office for National Statistics on Tuesday show that regular pay growth, excluding bonuses, increased 7.8 percent in April-June. This is the highest rate of growth since 2001 when comparable records were first established. It also marks the first time that nominal pay has surpassed price increases in over a year.
The average annual increase in total compensation for employees, including bonuses, increased by 8.2% in the quarter ending June. This is up from 7.2% in the previous three-month period. It was the highest rate of growth outside of the coronavirus outbreak.
Although the one-time bonus payments by the NHS to NHS employees in June affected the annual rate of pay growth, both key measures of wage inflation far exceeded analyst’s expectations.
Reuters polled economists who predicted increases of 7.4% and 7.3% in regular and total pay.
Monetary Policy Committee of the BoE closely monitors wage growth and labour data to look for signs that price pressures are persistent. Market expectations of a 0.25 percent increase in interest rates for September jumped to 99 percent due to the higher than expected pay figures.
The labour market was still loosened despite the clear signs of a loosening, including an unexpected increase in unemployment and a decline in inactivity.
The Bank of England’s view of a 25-basis point rate increase before the end of its tightening cycle is supported by the acceleration of wage growth, said Ruth Gregory. She is the deputy chief UK economist for Capital Economics.
She said that the interest rate expectations may change once Wednesday’s inflation data is published. Analysts predict a rapid slowdown of the consumer price increases to 6.8 percent, down from 7.9 percent in June.
Separate figures released by Kantar on Tuesday showed that the rate at which grocery prices increased was 12.7% in the four-week period ending August 6. This is a decrease of 2.2 percentage points compared to the previous month.
Rishi Sunak, the Prime Minister of India, said that the BoE was responsible for monetary policy. He told reporters that if we can get through the crisis, people would start to feel the benefits in their bank account and their pocket as inflation begins to drop.
The workforce data helped the pound rise 0.16 percent against the dollar. The odds that the BoE will raise interest rates from the current 5.25 percent to 6 percent by the end this year have also been increased.
The data released on Tuesday showed that the private sector’s pay growth was not slowing down as expected. The average annual pay growth in the private sector for the three-month period ending June was 8.2%, which is the highest rate of growth outside the Covid-19 timeframe.
The inflation rate has eased, and the annual growth of regular pay is now higher than price increases. This is the first time this has happened since March 2022. Prior to that, the quarterly increase in wages was only 3.1%.
Nye Cominetti of the Resolution Foundation, a think-tank economist, said that the figures signaled the end to Britain’s painful pay squeeze. Although earnings are now higher than before the global financial crisis of 2008-09, Nye Cominetti said that the 15-year stagnation had cost workers £230 per week and made Britain a poorer nation.
Guy Opperman, the Employment Minister, said that Tuesday’s figures showed how “our job market continues to demonstrate its strength. With employment nearing record levels and inactivity dropping by over 300,000. Since the pandemic peak.”
He said that with the falling inflation, and the reforms the government has implemented to remove barriers to employment, “we are in the right direction to reduce household costs and grow the economy”. The labour market has also become more relaxed than analysts had expected. The unemployment rate increased by 0.3 percentage points in the three-month period ending June, compared to analysts’ expectations that it would remain unchanged.
The number of employed people fell by 66,000 during the three-month period ending in June, while economists expected a 75,000 rise.
The number of people who are unable to work due to long-term illness has also increased.
Jonathan Ashworth, shadow secretary for work and pensions, said that the ONS data revealed the government “failing workers and businesses in Britain”.
He said that “families are struggling, and there are record numbers out of work because of long-term illness. The employment rate for those over 50 is still below the pre-pandemic level.” . . “The result is that thousands of dollars are written off, and the benefit bill keeps rising.”
The number of job vacancies decreased by 66,000 in the period from May to July to 1,02mn. This is the 13th consecutive decline. However, they remained higher than prior to the pandemic.
Samuel Tombs is the chief UK economist of Pantheon Macroeconomics. He said that the ONS data revealed that, while the slack on the labour market has been increasing rapidly, the wage growth “still has too much momentum” for the MPC not to tighten up just yet.