UK wages grew at a record pace in the quarter through June, making it more likely the Bank of England (BoE) will hike interest rates again when it next meets.
Annual growth in regular pay, excluding bonuses, was 7.8% between April to June 2023 - the highest regular annual growth rate since records began in 2001.
Annual average regular pay growth for the private sector was 8.2%, the largest annual growth rate seen outside the pandemic.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Annual growth including bonuses was 8.2% in the same time period. While this is good news for consumers, it introduces a fresh headache for the BoE’s rate-setting Monetary Policy Committee (MPC).
“Finally, we’ve stopped getting poorer with each passing month, as wages have returned to growth after inflation,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. “However, this is the bright spot among a fairly dismal employment picture, and even this could bring more bad news further down the line.
We look into what effect this data will have on interest rates.
How do rising wages affect interest rates?
The BoE base rate is currently sitting at a 14-year high of 5.25%. While the jump in wages will be a big relief for consumers, “it will be far less welcome for the Bank of England”, says Coles.
“Since the period of higher inflation started, there was always the risk that wages would need to rise to help people make ends meet and that it would end up fuelling even more inflation.
The figures could mean “we may well see another rate rise when the committee next meets,” adds Coles. “This raises the prospect that it could exacerbate growing weakness in the jobs market.”
‘’The blast of cold air from higher interest rates is being felt in the labour market, with unemployment ticking up but the risk is that the growth in wages will continue to fan the fires of inflation,” adds Susannah Streeter, head of Money and Markets at Hargreaves Lansdown. “With the highest annual wage growth recorded in June since records began in 2001, another rate hike from the Bank of England looks bolted on in September.”
Unemployment rate grows
Meanwhile, the unemployment rate between April to June increased by 0.3% to 4.2% – its highest level since 2021.
“Inactivity due to long-term sickness rose to a record high and job vacancies fell by 66,000, dropping for the 13th consecutive period,” says Victoria Scholar, head of investment at interactive investor.
“Amid the macroeconomic storm clouds, businesses have become increasingly cautious about their hiring plans, reducing the level of vacancies which has made it more difficult for workers to find jobs, raising the unemployment rate,” adds Scholar.
“On top of that there’s a record number of people unable to work due to long-term sickness, perhaps pushed up patient backlogs and other pressures on the NHS.”
Join us at the MoneyWeek Summit on 29.09.2023 at etc.venues St Paul's, London.
Tickets are on sale at www.moneyweeksummit.com
MoneyWeek subscribers receive a 25% discount.
-
How to boost your pension by £33,000 by paying it an annual Christmas bonusContributing an extra £400 into your pension pot this festive period will give the gift of compound interest and should make your retirement feel more jolly and bright
-
Japan’s medium-sized stocks provide shelter from trade warsNicholas Price, portfolio manager of Fidelity Japan Trust, tells us where to invest in Japan
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record highStubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
-
Would a food price cap actually work?Analysis The government is discussing plans to cap the prices of essentials. But could this intervention do more harm than good?
