UK wage growth matches record high but job market shows signs of cooling
Reuters
Published Jul 11, 2023 02:52AM ET
Updated Jul 11, 2023 06:07AM ET
By William Schomberg
LONDON (Reuters) -A key measure of British wages rose at the joint fastest pace on record but official data also showed signs that the inflationary heat in the labour market is cooling, offering the prospect of relief for the Bank of England.
Sterling edged up but yields on two-year British government bonds, which are sensitive to speculation about interest rates, fell sharply, suggesting investors were dialling back their bets on how much higher the BoE would go with its run of rate hikes.
"There were some tentative signs that the labour market may be turning.... But this has to be balanced against still persistently strong wage growth," Ellie Henderson, an economist with bank Investec, said.
"The Bank will likely want to see an easing in the wage growth numbers before it can think about declaring an end to the fight against inflation."
The 7.3% surge in basic earnings in the three months to May compared with the same period a year ago was the joint highest alongside April's growth - which was revised up on Tuesday from an initial 7.2% - and the second quarter of 2021, according to data which goes back to 2001.
Economists polled by Reuters had forecast a 7.1% rise and said the stronger-than-expected increase left the BoE on course to raise interest rates for the 14th time in a row on Aug. 3, probably by another half-percentage point.
Before then, the statistics office will announce June's inflation data.
Sterling edged up to a 15-month high against the dollar and also gained moderately against the euro. Markets saw a roughly 50% chance of the BoE's benchmark rates hitting a peak of 6.5% in early 2024, up from 5% now.
INFLATION PRESSURE
The BoE is monitoring pay growth closely as it assesses how much inflationary pressure remains in Britain's economy. Consumer price inflation held at 8.7% in May, higher than in any other big rich economy.
Governor Andrew Bailey said on Monday that wages as well as prices charged by companies were rising too fast and he vowed to "see the job through". Finance minister Jeremy Hunt said the government would have to act responsibly on public sector pay.
But the inflation pressure was tempered by several signs of a slowdown in the labour market.
The unemployment rate unexpectedly rose to 4.0% from 3.8% in the three months to April and the number of people out of work increased by the most since late 2020. Job vacancies extended their run of falls to their lowest since mid-2021.
Samuel Tombs, with Pantheon Macroeconomics, said the BoE's Monetary Policy Committee (MPC) might see enough signs of a slowdown in the data to allow it to halt its run of rate increases soon, although probably not in August.
"For now, wages still are rising too quickly for the MPC to tolerate on an ongoing basis," he said. "But it always has taken a little time for changes in labour market slack to influence wage growth and some leading indicators remain encouraging."
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Annual pay growth including bonuses sped up to 6.9%, the fastest on record excluding the coronavirus pandemic period when government job subsidies distorted the data, the ONS said.
Other signs of a loosening of inflation pressure in the data included a fall in the inactivity rate - which measures people out of work and not looking for it - to its lowest since the onset of the pandemic in 2020.
Written By: Reuters
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