The pace of wage growth for UK workers eased in the three months leading up to the end of May but remained at levels that would normally be too high for the Bank of England to keep inflation at its 2 per cent target. This comes as the BOE left interest rates unchanged.
Data from the Office for National Statistics (ONS) showed an average weekly earnings increase (excluding bonuses and adjustments) of 5.7 per cent (year on year). The earnings in total over the same period also increased by 5.7 per cent.
The figures were in step with the middle ground of what economists polled by Reuters had predicted. For the three months up to April, the annual rate of growth in regular pay was 6.0 per cent on average, while total earnings growth was 5.9 per cent. The Bank of England is due to announce its next interest rate decision in two weeks’ time. After this week’s surprise inflation figures, financial markets see a roughly one-in-three chance of an August rate cut.
Furthermore, the Thursday announcement from the Office for National Statistics highlighted a delay in the changeover to a new edition of the Labour Force Survey, previously scheduled for September. Although wage increases have recently slowed, the trend toward higher pay has failed to materialise for many workers. Voting patterns suggest that a tightening labour market could lead to a pay squeeze for many households. The BoE should tread carefully.