“Strong wage growth will embolden the hawks calling for a bigger rise, while those preferring a smaller move will focus on signs that labour demand is cooling. ”Barclays poll shows — Reuters
LONDON: UK wages are rising at close to a record pace, maintaining pressure on the Bank of England (BoE) to keep hiking interest rates despite a worsening economic outlook.
Official figures yesterday showed average earnings excluding bonuses were 6.1% higher in the three months through October than a year earlier. That’s the most since records began in 2001, barring the height of the coronavirus pandemic.
The jump reflects labour shortages that remain chronic despite a cost-of-living crisis that is set to tip the United Kingdom into a long recession, if it has not already done so. Those shortages are being made worse by the loss of hundreds of thousands of workers over the last two years.
“These figures show the tightness in the UK labour market is not shifting significantly,” said Jane Gratton, head of people policy at the British Chambers of Commerce.
The finance and the business services sectors had the largest increase in wages, up 7%, followed by wholesale, retail and hospitality.
The figures also showed a wide gap between the pay increases private-sector workers earn and what’s going to those in public services. Average regular pay growth for the private sector was 6.9% in the quarter through October, and 2.7% for the public sector.
Bloomberg Economics’ Ana Andrade said the latest batch of jobs data lifts the odds of another 75-basis-point hike at the BoE’s meeting this week, adding however that it’s probably not enough to tip the balance.
“Strong wage growth will embolden the hawks calling for a bigger rise, while those preferring a smaller move will focus on signs that labour demand is cooling.”
The historic difference is likely to fuel the demands of government workers from nurses to immigration staff who are going on strike this month in pursuit of wage increases to match inflation, which hit a 41-year high of 11.1% in October.
The Office for National Statistics said that 417,000 working days were lost due to labour disputes in October 2022, which is the highest since November 2011.
Wages are still rising more slowly than inflation, reducing the spending power of UK workers and fuelling the calls from unions for bigger wage increases. In real terms, pay fell 2.7%.
The government has offered public sector workers a 5% raise on average, insisting pay restraint is needed to repair the public finances and bear down on inflation.
“Any action that risks embedding high prices into our economy will only prolong the pain for everyone and stunt any prospect of long-term economic growth,” Chancellor of the Exchequer Jeremy Hunt said in a statement yesterday.
The BoE has raised interest rates eight times over the last 12 months in an effort to avert a wage-price spiral. Investors expect a further half-point increase tomorrow, taking the benchmark rate to a 14-year high of 3.5%.
However, the decision is expected to be marked by deep divisions among policymakers over how quickly to tighten policy, given the dire state of the economy.
There were some signs of loosening in the UK’s tight labour market. Inactivity, which measures people who are neither working nor want to work, fell by 76,000. As a result, employment and unemployment levels rose.
“The labour market has now turned,” said Kitty Ussher, chief economist at the Institute of Directors.
“While unemployment is still, thankfully, very low by historical standards, it has started to march upwards.” — Bloomberg
