UK wages grew much more than expected and at a record annual pace in the three months to June, according to official figures that are likely to reinforce the Bank of England’s concerns over the pressures fuelling inflation.
In April to June, annual growth in regular pay, which excludes bonuses, was 7.8 per cent, according to data published on Tuesday by the Office for National Statistics. It is the highest annual growth rate since comparable records began in 2001, and pushed nominal pay above price growth for the first time in more than a year.
Annual growth in employees’ average total pay, which includes bonuses, was 8.2 per cent in the three months to June, up from 7.2 per cent in the three months to May and the largest annual growth rate seen outside the coronavirus pandemic period.
The annual rate of growth in total pay was affected by one-off bonus payments made by the government to NHS staff in June, but both key measures of wage pressures far exceeded analysts’ expectations.
Economists polled by Reuters had forecast increases in total and regular pay of 7.3 per cent and 7.4 per cent respectively.
The BoE’s Monetary Policy Committee carefully watches wage growth and labour market data for signs of persistent price pressures. The bigger than expected figures on pay resulted in market expectations for a 0.25 percentage point rise in interest rates in September jumping to 99 per cent.
This was despite clear signs that the labour market continued to loosen, with an unexpected rise in unemployment, falling inactivity and declining employment.
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Accelerating wage growth “supports our view that the Bank of England will deliver one more 25 basis point rate hike before it brings its tightening cycle to a close”, said Ruth Gregory, deputy chief UK economist at the consultancy Capital Economics.
She added that interest rate expectations could change after inflation data for July was published on Wednesday, with analysts forecasting a sharp slowdown in the rate of consumer price rises to 6.8 per cent, down from 7.9 per cent in June.
Separate figures released on Tuesday by research company Kantar showed that the rate of grocery price inflation stood at 12.7 per cent in the four weeks to August 6, down 2.2 percentage points from the previous month.
Asked if strong wage growth would force the MPC to vote for a 15th consecutive interest rate rise, Prime Minister Rishi Sunak said monetary policy was a question for the BoE. “If we get through this, people will really start to see the benefit in their bank accounts, in their pockets, as inflation starts to fall,” he told reporters.
Sterling rose 0.16 per cent against the dollar on the back of the workforce data. Markets also increased the odds of the BoE lifting interest rates to 6 per cent by the end of this year from 5.25 per cent at present.
Tuesday’s data showed no sign of the expected easing of private sector pay growth. Annual average regular pay growth for the private sector was 8.2 per cent in the three months to June, the largest annual growth rate seen outside of the Covid-19 period.
With inflation easing, annual growth in regular pay exceeded price increases for the first time since March 2022, up from a 3.1 per cent contraction in the three months to February.
Nye Cominetti, economist at the Resolution Foundation think-tank, said the figures marked the end of Britain’s “painful pay squeeze”. While earnings were finally higher than they were before the 2008-09 global financial crisis, he said the “15-year stagnation has cost average workers £230 a week — and left Britain a far poorer country”.
Employment minister Guy Opperman said Tuesday’s data displayed how “our jobs market continues to show its strength with employment at near record levels and inactivity down by over 300,000 since the pandemic peak”.
He added that combined with falling inflation and the government’s package of reforms to remove barriers to work, “we are on the right path to drive down household costs and grow our economy”.
However, labour market conditions also loosened more than expected. In the three months to June, the rate of unemployment increased 0.3 percentage points on the quarter to 4.2 per cent, in contrast with analysts’ expectations of no change.
The number of people in employment fell by 66,000 in the three months to June, whereas economists had forecast a 75,000 increase.
Job inactivity also marginally declined to 20.9 per cent, despite the number of people prevented from working by long-term sickness hitting a new record.
Jonathan Ashworth, shadow work and pensions secretary, said the ONS data showed the government was “failing working people and businesses across Britain”.
He said: “Families are struggling to get by, there are record numbers of people out of work due to long-term sickness and the employment rate for over-50s is still below pre-pandemic levels . . . The consequence is thousands written off and a rising benefit bill.”
In May to July, the estimated number of vacancies fell by 66,000 on the quarter to 1.02mn, marking the 13th consecutive period of decline, although job vacancies remained higher than before the pandemic.
Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said the ONS data showed that while slack in the labour market was increasing rapidly, “wage growth still has too much momentum for the MPC to stop tightening just yet”.
Additional reporting by Lucy Fisher and Anna Gross in London
Source: Economy - ft.com
