By Jack Barnett
Workers’ pay is rising faster than expected and at among the fastest paces on record in a sign that the Bank of England will deliver a 14th straight interest rate rise next month, official figures out this morning reveal.
Pay rose 7.3 per cent over the three months to May on an annual basis, a jump from the previous quarter’s 7.2 per cent increase, according to the Office for National Statistics (ONS).
The number was above the City’s expectations of a 7.1 per cent increase and near the Bank of England’s estimate. It was also in the top three increases since the ONS started reporting data in 2001.
Including one-off bonuses, wages jumped 6.9 per cent over the same period. The City thought the figure would slow to 6.8 per cent.
Governor Andrew Bailey and the rest of the nine-strong monetary policy committee (MPC) is concerned elevated wage settlements will raise businesses’ fixed costs, incentivising them to keep lifting prices. That could mean inflation – stuck at 8.7 per cent in May – falls much slower than expected.
Markets reckon there’s a 95 per cent chance of the Bank repeating last month’s 50 basis point increase, which would take borrowing to 5.5 per cent. Peak rate expectations have climbed to 6.5 per cent.
Sky high inflation has compelled staff to ask their employers’ for pay rises that help shield their living standards. Workers’ pay increases have been cancelled out for more than a year and a half now, according to ONS data.
However, pay growth is now the closest it has been to catching up with inflation since the cost of living crisis started, before by just 0.8 per cent, the ONS said.
Britain’s labour market has held up extremely well despite predictions that the country is headed for its first recession outside of the pandemic since the 2008 financial crisis. But cracks are emerging.
Unemployment jumped to four per cent from 3.8 per cent in the three months to May, the ONS said today.
Vacancies, though down 85,000, are still running at more than 1m.
While a strong jobs market has helped keep GDP growth just about positive at 0.1 per cent in the three months to March, it is keeping inflation afloat by fuelling consumer spending.
But there are signs that tension in the jobs market is unwinding. The employment rate leapt rose to 76 per cent, up 0.2 percentage points over the last three months.
The ONS also said economic inactivity – people not in a job or looking for one – fell, possibly caused by Brits returning to the jobs market to replenish their finances in response to rising living costs.
Long-term sickness keeping people out of the workforce remains a problem, with the number of people economically inactive due to health problems at more than 410,000, though that was about 30,000 lower than the previous three months.
Economists have said inflation is being intensified due to a smaller labour force, while growth is being pegged by businesses being unable to find appropriate staff to carry out roles.
More to follow.
