UK pay has risen at its fastest pace in over three decades for the fifth quarter in a row in a sign that the Bank of England may have to keep raising interest rates to get ahead of inflation, new figures out today show.
Workers notched an average six per cent wage increase in the three months to May, meaning pay growth is still running at its hottest level since 1991, according to XpertHR.
The most common wage lift was five per cent over the last three months, a level that experts think isn’t compatible with the Bank bringing inflation back down to the two per cent target.
The numbers are likely to raise the chances of Bank Governor Andrew Bailey and the rest of the monetary policy committee jacking up rates for the 13th time in a row when they announce the outcome of their latest policy meeting tomorrow.
Last week, figures from the Office for National Statistics (ONS) revealed wages are accelerating at more than seven per cent, the second quickest rise on record, prompting markets to lift their peak Bank Rate expectations to just under six per cent.
Traders think a 25 basis point increase to 4.75 per cent is the most likely outcome on Thursday, although they reckon there is an outside chance of a larger 50 basis point jump.
Wages have been rising quickly over the last year or so due to workers responding to rapidly accelerating prices by demanding pay increases.
Inflation peaked at 11.1 per cent in October. Data from the ONS today is poised to show it dropped to 8.3 per cent in May, although the City has consistently undershot its inflation projections.
Employers struggling to source staff that can seamlessly slot into their workforce is also steering them to raise starting pay to attract talent.
“Despite some signs of the labour market easing, employers continue to report skills shortages and retention challenges,” Sheila Attwood, senior content manager, data and HR insights at XpertHR, said.
“Pay and benefits are often used to help ease the pressures, and this is likely to be behind some of the increases we are seeing,” she added.
The Bank has said that it needs to see a sustained cooling in wage growth before it stops hiking interest rates.
Economists have warned that the central bank risks pushing the UK into a recession if it meets market expectations and kicks borrowing costs up toward six per cent.
So far this year, the economy has outperformed the Bank of England, International Monetary Fund, Organisation for Economic and Cooperation and Development and Office for Budget Responsibility’s expectations.