Growth in Britain’s salaries continued on a downward trend in April, according to the most recent figures from the Office for National Statistics (ONS), casting doubt on Bank of England (BoE) economists’ argument that rising wage pressures will require interest rates to rise.
In the three months to May, average weekly earnings grew by 2.5%, slower than an upwardly revised 2.6% recording in April, the figures revealed. Growth in both total pay, including bonuses, and regular pay appears to have peaked, in January and March respectively.
Multiple members of the BoE’s rate-setting monetary policy committee (MPC) have pointed to evidence that wage pressures are picking up amid a historically tight labour market, which require interest rates to rise.
The UK’s unemployment rate remained steady at 4.2%, the lowest level seen in four decades, while the employment rate increased to 75.7%, the highest in the 47 years that the government has been recording the data. The number of people in employment rose by 137,000, below economists’ expectations but still a faster pace than that seen in previous months.
The messages received from the labour market and other economic data have resulted in the MPC facing a difficult decision at their next meeting on 2 August. The MPC previously decided not to increase interest rates after an unexpectedly weak first-quarter GDP growth data. However, MPC members, including BoE governor Mark Carney and chief economist Andy Haldane, have indicated that they believe rising wage pressures will keep consumer price index inflation above the bank’s 2% target over the medium term.
PwC senior economist Mike Jakeman said the “modestly good” labour market data “failed to hint at any improvement in wages”. Jakeman added that the moderate real wage growth, when taking into account inflation, represented a “disappointing trend, given the apparent tightness in the labour market”.
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