Wage growth in the United Kingdom has continued its brisk upward trajectory, presenting a notable concern for the Bank of England as it approaches an imminent policy meeting.
According to recent data released by the Office for National Statistics, average earnings, excluding bonuses, surged by 6.0% in the three-month period leading up to April compared to the same period the previous year. This growth rate mirrors the momentum observed in the first quarter of the year, albeit slightly below the consensus estimate of 6.1% among economists surveyed by The Wall Street Journal. Nonetheless, it underscores a significant trend of wage inflation within the UK economy.
Despite the annual inflation rate in the UK easing to 2.3% in April, nearing the Bank of England’s target of 2%, prices within the labor-intensive services sector saw a notable increase, rising by 5.9%. This divergence in price dynamics raises concerns among policymakers, who fear that a stabilization of energy prices, following recent declines, could drive overall inflation higher due to domestic pressures such as rapidly rising wages.
As the Bank of England prepares for its upcoming meeting on June 20, it is widely expected to maintain its rates at a 16-year high. Investors are closely monitoring the August 1 meeting as a potential date for the central bank’s first rate cut since March 2020, given the evolving economic landscape.
In contrast to the robust wage growth, the UK’s unemployment rate edged up to 4.4% in the three months to April, slightly surpassing expectations. Additionally, vacancies declined by 12,000 during this period, indicating a potential cooling in the labor market.
Despite these economic shifts, there is some relief for households as wage increases now outpace inflation, resulting in real earnings beginning to rise after experiencing sharp declines following surges in energy and food prices triggered by Russia’s invasion of Ukraine in early 2022. Real wages in the three months through April were reported to be 2.3% higher than a year earlier.
However, the positive turnaround in earnings does not appear to be bolstering the ruling Conservative Party’s prospects ahead of the July 4 general election. Opinion polls suggest that the Conservative Party is trailing behind the opposition Labour Party by a significant margin, indicating that economic factors may be playing a role in shaping public sentiment and political outcomes.