According to official figures released by the Office for National Statistics (ONS), wage growth in the UK has accelerated even further, reaching a record high.
Average weekly earnings, excluding bonuses, experienced an annual growth rate of 7.3% during the three months ending in May, matching the highest level ever recorded.
Economists had anticipated a decline from the initial figure of 7.2%, but the ONS revised it upward to 7.3%. This wage surge comes as a concern for policymakers as the Bank of England strives to curb inflation. The bank, in its efforts to tame rising prices, wishes to see a decline in demand within the economy before pausing its cycle of interest rate hikes.
However, Governor Andrew Bailey has hinted at further rate increases despite projecting a significant drop in energy-led inflation in the coming months. He argues that high pay awards, while providing some relief to households during the cost of living crisis, only contribute to price growth in the long run.
The sustained rise in wages, driven by the increase in minimum wage levels and annual pay reviews, raises worries for policymakers. Last month, the bank imposed an unexpected 0.5 percentage point rate hike, bringing the bank rate to 5%, in response to the wage spike and mounting evidence of persistent inflationary pressures.
Recent figures from the British Retail Consortium, indicating a slight uptick in sales growth and a decrease in food inflation, are unlikely to convince the bank that its measures have been sufficient. By increasing borrowing costs, the bank aims to curb the pace of price growth and bring it back to more manageable levels. Currently, the consumer prices index stands at 8.7%, well above the bank’s inflation target of 2%.
The majority of market participants anticipate another 0.5 percentage point rate increase at the next monetary policy committee meeting early next month. The ONS report also highlighted a decline in vacancies to a 2021 low and a rise in the unemployment rate to 4% from 3.8%.
