The latest set of employment figures before election day show wages continuing to grow at more than double the rate of inflation, a double-edged sword for Rishi Sunak’s government.
The prospect of a pre-election rate cut by the Bank of England has been damaged by official figures showing no progress has been made in curbing the pace of wage growth.
Data from the Office for National Statistics (ONS) shows that basic wages rose by 6% year-on-year in the three months to April.
That was close to the figure reported by the ONS over the past two months. The upward pressure came from the government’s 9.8% increase in the National Living Wage, which came into effect in April.
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When taking into account the impact of inflation, wage levels were at their highest level since July 2021, at 2.9%.
The wage measure that includes bonuses has even increased from 5.7% to 5.9%, according to the ONS
Although it’s good news for voters as it puts wage growth at more than double the 2.3% inflation rate, it won’t help convince bank of England that the time is ripe for an interest rate cut when it announces its final decision on June 20.
Rishi Sunak would like to see the Bank, which is independent of the government, impose a cut in borrowing costs on that date to bolster his argument that the outlook for household and consumer finances is improving.
With the Conservatives trailing Labor in the polls, the ONS employment figures are the latest before polling day on July 4.
The data also showed a rise in the unemployment rate from 4.3% to 4.4%, although this figure comes with a major health warning from the ONS due to some current reliability issues with the Labor Force Survey.
What all this means for the Bank
The unemployment rate may have some impact in Threadneedle St as it points to further damage to the economy from higher interest rates.
The Bank has hinted that a rate cut is likely in the coming months, but it remains concerned about persistent inflation in the services sector and the pace of wage growth fueling more price increases in the economy.
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Salary increases have outpaced inflation since August last year, seemingly increasing consumer purchasing power, but household budgets are still under pressure.
The cost of livingcompounded by unprecedented increases in raw energy prices following Russia’s invasion of Ukraine, has evolved over time and even expanded into the Bank’s drug to suppress inflation.
There were fourteen consecutive rate hikes from December 2021 to last summer, aimed at dampening demand and thus helping to reduce price growth.
The interest rate rises pushed up the cost of borrowing, with mortgage holders, for example, facing extra bills averaging hundreds of pounds more per month as low fixed rate terms expired.
New deals turned out to be eye-watering in comparison.
With the key inflation measure for consumer prices at 2.3% – above the Bank’s 2% target – rate-setting committee members have acknowledged progress but are unlikely to follow the European Central Bank in cutting of the interest this month.
Financial markets only saw a 10% chance of a rate cut from 5.25% to 5% on June 20 before the ONS data was released.
Most of the money is in September.
However, these predictions may still change.
The ONS will also release preliminary growth figures for the April economy this week. Economists predict they will show zero growth this month, largely due to the impact of bad weather.
The latest inflation figures will be published the following week.
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