UK wage growth points to another rate hike, but unemployment rate rises

LONDON, Sept 12 (Reuters) – Another record month for British wage growth put the Bank of England on track to raise interest rates once again, perhaps for the last time in the current cycle, as data on Tuesday also pointed to to a cooling of the labor market. .

Average weekly earnings growth in the three months to July rose to 8.5% on an annual basis, up from 8.4% in the previous month and marking a new high, excluding distortions during the COVID-19 pandemic, in records dating back more than 20 years, the Office for National Statistics (ONS) said.

Most investors believe this will lead the Bank of England to raise interest rates again on September 22, from 5.25% to 5.5%, as it tries to control the highest inflation rate among the majors. advanced economies.

But other labor market indicators underscored caution about the economic outlook among many of the Bank of England’s top officials.

The unemployment rate rose, the number of employed people fell sharply and vacancies fell below one million for the first time in two years.

“The biggest question is what the path forward is going to be,” said Hugh Gimber, global market strategist at JP Morgan Asset Management. “The Bank will be reluctant to further tighten its policies if it has seen other central banks around the world pause.

“However, if the incoming data does not definitively change, another rise to a terminal rate of 5.75% is absolutely on the table.”

Last week, Bank of England Governor Andrew Bailey said the central bank is “much closer” to ending its streak of rate hikes, but that borrowing costs may still have to rise further due to to persistent inflationary pressures.

The unemployment rate rose to 4.3% in the three months to July from 4.2% the previous month, its highest level since the three months to the end of September 2021, the ONS said.

The unemployment rate is already higher than the 4.1% that the Bank of England had forecast for the third quarter as a whole, when it published its last set of forecasts in early August.

Employment fell by a more than expected 207,000 people in the three months to July, including a fall of 182,000 in London, the biggest such fall since the three months to October 2020.

Meanwhile, the number of employed people aged 16 to 24 fell by 176,000 in the three months to July, the second biggest drop ever recorded.

“The labor market is showing more signs of cracks than ever,” Nomura economists said, adding that they expected the Bank of England’s Monetary Policy Committee to be more divided next week on raising rates than in previous months.

The pound fell slightly against the dollar following the data.

Wages continued to rise rapidly and above the rate of inflation. Pay packages, excluding bonuses, were 7.8% higher than a year earlier, the fastest rate since ONS records began in 2001 and in line with forecasts by economists in a Reuters poll.

Adjusting for consumer price inflation, total average weekly earnings grew by 0.6%, the first positive figure since March 2022.

Although this is good news for workers, the salary level in real terms is no longer better than it was more than 15 years ago.

“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation,” the minister said. Finance, Jeremy Hunt.

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