Pay growth hits record level but analysts warn ‘not good news for inflation’

Pay growth hits record level but analysts warn ‘not good news for inflation’ Britain’s unemployment rate has exceeded expectations while wages increased at the joint-highest rate on record, new data from the Office of National Statistics (ONS) shows. Average regular wages, not including bonuses, grew by 7.3 percent in the three months to May, the same as during the previous three months and the joint highest since records began in 2001. However, the wage rise pace has become an increasing focus for the Bank of England in its efforts to bring inflation down to a Government target of two percent. But while UK inflation remains high at 8.7 percent, concerns are mounting that rising wages will increase costs faced by companies and result in higher-priced goods, thereby exacerbating the impact on inflation. The Bank of England has raised the Base Rate 13 times, increasing borrowing costs to stem spending levels and encourage saving in a bid to reduce inflation. The Bank of England Base Rate is currently resting at a 15-year high of five percent But analysts fear rising wages could see the Bank of England introduce even more Base Rate hikes, which will push mortgage rates up even further. The Base Rate was last raised to a 15-year high of five percent on June 22 and mortgage rates are now averaging 6.55 percent for a two-year fix. John Choong, market and equity analyst at InvestingReviews.co.uk said: ‘This isn’t good news for inflation or mortgage rates as it’s becoming increasingly likely that the Bank of England may now have to raise interest rates to an eye-watering seven percent to combat a wage-price spiral.’ However, Jack Kennedy, UK Economist at Indeed, added: ‘While pay pressures remain strong as workers continue to push for higher wages to compensate for high inflation, we are seeing weaker competition for hires among employers. For example, the share of job postings on Indeed offering signing bonuses has dropped to less than 0.8 percent from a peak of 1.1 percent last November.’ Mr Kennedy continued: ‘Lower recruiting intensity could remove some of the heat from wage growth as headline inflation falls back over the coming months. ‘That could ease some of the pressure on Threadneedle Street, but the MPC will need to see evidence of moderating wage growth sooner rather than later to dissuade them from further, and perhaps substantial, rate hikes.’ The ONS data also showed the rate of unemployment increased to four percent for the three months to May, up from 3.8 percent in the previous three-month period. Economists had predicted a reading of 3.8 percent to remain for the latest quarter. Darren Morgan, ONS director of economic statistics, commented: “Total employment grew in the latest three months while the number of people actively looking for work also increased, both driven by men rejoining the labour market. SUBSCRIBE Invalid email We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info Trending