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Record Touched By UK Basic Wage Growth Which Raises Concerns For The Bank Of England

Record Touched By UK Basic Wage Growth Which Raises Concerns For The Bank Of England
According to data released on Tuesday, basic earnings in Britain have climbed to a new record growth rate, raising concerns for the Bank of England about long-term inflation pressures despite 14 consecutive hikes in interest rates.
The unemployment rate unexpectedly increased to 4.2% from 4.0%, the highest level since the three months ending in October 2021, according to official data, which indicated some new indicators of weakening in the labour market.
The greatest gain in basic earnings since records began in 2001, however, served as more fuel for Britain's high inflation rate as many firms turned to higher pay offers to keep or recruit employees.
The rate of annual wage rise including bonuses increased as well, reaching 8.2%, the fastest rate outside of the time of the coronavirus pandemic when data were skewed by government job subsidies.
Following Tuesday's statistics, the pound increased in value relative to the dollar and the euro.
The wage data "suggests the Bank of England has a bit more work to do and supports our view that the Bank will raise rates from 5.25% to 5.50% in September, although a lot will depend on the next labour market release and two CPI inflation data releases," according to Ruth Gregory, an economist with Capital Economics.
Pay growth appears to be on pace to surpass the rate of consumer price inflation, which is anticipated to have slowed to 6.8% in July according to data that the ONS will report on Wednesday.
Markets predicted that the BoE's benchmark rates will increase from their present level of 5.25% to 6% in early 2024, with a probability of about 55%. The likelihood of rates reaching that level was around one in three on Monday.
The rate of wage rise was "materially above" the central bank's projections, according to Governor Andrew Bailey earlier this month, but the BoE also hinted that it was almost ready to halt its cycle of interest rate increases.
Beyond compensation data, there are other indications of a softening in the labour market that Bailey and his coworkers may find consoling.
Along with the unexpected increase in the unemployment rate, the number of individuals in employment decreased by 66,000, and job openings continued to decline throughout the course of the quarter, reaching their lowest level since mid-2021, also falling by 66,000 to 1.02 million.
However, long-term sickness-related inactivity reached a new record high, making it more difficult for businesses to fill open positions and increasing the pressure on pay increases.

Christopher J. Mitchell

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