UK wage gains cool at near record pace, easing price pressures
UK WAGE growth cooled sharply again at one of the fastest paces on record but remained at a level that’s still likely to maintain inflation concerns at the Bank of England.
Regular pay growth, which excludes bonuses, eased to 6.6 per cent in the three months through November, the Office for National Statistics said on Tuesday (Jan 16). That was in line with expectations and down from a downwardly revised 7.2 per cent in the previous three-month period.
Another sharp reduction in wage pressures adds to the case for an early interest rate cut, with economists expecting inflation to near the BOE’s 2 per cent target by the spring. An ultra-tight labour market and rapid pay growth have been a key worry for rate-setters looking for signs that a wage-price spiral may persist.
The pound extended losses after the release, falling as much as 0.5 per cent to US$1.2663, a more than one-week low.
Investors are betting the BOE will shift toward rate cuts in May as attention pivots away from inflation and toward the stagnant economy. However, Governor Andrew Bailey has persisted with the BOE’s higher for longer message, saying officials have some distance to go before they can be sure they’ve contained price pressures.
Chancellor of the Exchequer Jeremy Hunt said the figures prove that households are starting to feel better off. The figures also showed some increase in real living standards, easing the tight squeeze that prevailed over much of the past two years. That could help the ruling Conservative Party narrow the gap with the Labour opposition in polls ahead of a general election expected later this year.
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“With inflation falling, it’s heartening to see real wages growing for the fifth month in a row,” Hunt said in a statement. “This is on top of the record cut to National Insurance worth nearly £1,000 (S$1,694.28) in a typical household with two working people, putting more money in their pockets.”
Regular pay rose by 1.4 per cent in the three months through November after adjusting for CPI inflation. That was the fastest pace since January 2020 excluding distortions during the pandemic.
“While annual pay growth remains high in cash terms, we continue to see signs that wage pressures might be easing overall,” said ONS director of economic statistics Liz McKeown. “However, with inflation still falling more quickly, earnings continued to grow in real terms.”
Aside from the period distorted by the pandemic, the easing in wage growth matched the fastest drop in records stretching back to 2001. It was also the first reading below 7 per cent in eight months. Even so, the BOE has said that wage growth is well above the level that’s compatible with its 2 per cent inflation target.
The ONS said that its experimental data showed that unemployment held at 4.2 per cent. It’s still using experimental estimates for unemployment, employment and economic activity figures after being forced to suspend its Labour Force Survey by a plunge in responses. It expects to reintroduce the LFS in next month’s publication with the data problems coming at a crucial time for policymakers at the BOE.
Economists expect inflation to come close to the BOE’s 2 per cent target by the Spring, according to a survey of economists by Bloomberg published on Tuesday. Inflation is expected to ease from 3.6 per cent in the first quarter of 2024 to 2.1 per cent in the second quarter.
Economists now expect this cooling in price pressures to lead to the first-rate cut in the second quarter with further reductions bringing the BOE’s key lending rate to 4.25 per cent in the fourth quarter. BLOOMBERG
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