In a development that is sure to raise eyebrows at the Bank of England, official figures released by the Office for National Statistics (ONS) reveal that UK pay growth accelerated in November. This uptick in wages is likely to fuel concerns over persistent inflationary pressures, potentially influencing the central bank’s upcoming interest rate decision.
Wages on the Rise
According to the ONS data, annual growth in average weekly earnings rose by a notable 5.6% in the three months leading up to November, marking a significant increase from the 5.2% recorded in the preceding three-month period. This surge in pay growth surpassed economists’ expectations, particularly for regular pay excluding bonuses.
Pay growth picked up for a second consecutive period, again driven by strong increases in the private sector. Real pay growth, which excludes the effects of inflation, increased slightly.
– Liz McKeown, ONS Director of Economic Statistics
A Cooling Job Market?
Despite the robust wage growth, there are indications that the UK job market may be cooling. The unemployment rate for people aged 16 and over ticked up to 4.4% in the three months to November, a slight increase from the 4.3% recorded in the previous three-month period. Additionally, the number of job vacancies fell by 24,000, marking the 30th consecutive monthly decline, although openings still remain above pre-pandemic levels.
Implications for Interest Rates
The latest pay growth figures are bound to complicate matters for the Bank of England as it deliberates whether to cut interest rates from the current level of 4.75% at its upcoming meeting on February 6th. The central bank will be closely monitoring the jobs market for any signs of inflationary pressures, as robust pay growth could lead companies to raise prices to accommodate higher wage bills.
Several policymakers at the Bank have cautioned that pay growth remains above levels considered consistent with its 2% inflation target. However, others argue that generous pay deals are unlikely to persist for much longer as the recent high period of inflation fades and economic growth slows.
Challenges for the Chancellor
The stronger-than-expected wage growth also presents a challenge for the Chancellor, Rachel Reeves, who is already under pressure following turbulence in financial markets earlier this month. Experts have warned that higher borrowing costs could necessitate tax increases or spending cuts to avoid breaching fiscal rules.
Today’s figures are more evidence that we must get Britain working, which is why this government is relentlessly focused on driving up opportunity and driving down barriers to success in every part of the country.
– Liz Kendall, Work and Pensions Secretary
Data Quality Concerns
Amidst the economic uncertainty, the Bank of England is also grappling with issues surrounding the quality of the UK’s official jobs market statistics. Experts have cautioned that policymakers are essentially “flying blind,” with the prospect that decisions are being made based on flawed data. The ONS has acknowledged these concerns, admitting that it could take until 2027 to replace its faulty labour force survey, which has been plagued by low response rates and a poorly executed transformation program.
Looking Ahead
As the UK navigates the complex economic landscape, policymakers will need to carefully balance the competing priorities of curbing inflation, supporting wage growth, and maintaining financial stability. The coming months will be crucial in determining the trajectory of interest rates and the overall health of the UK economy.
With businesses already facing the prospect of increased costs due to a planned £25bn hike in employers’ national insurance contributions and a 6.7% rise in the minimum wage from April, the pressure is on the government and the Bank of England to steer the economy through these challenging times. Only time will tell if they can successfully navigate this delicate balancing act and set the UK on a path towards sustainable growth and prosperity.
