Could strong wage growth deter a summer rate cut?

The 2% uptick in real earnings ‘will be of concern to the Bank of England’

Low angle view of Bank of England, Royal Exchange, and Duke of Wellington equestrian statue (1844) with skyscrapers and construction in background.


Regular earnings (excluding bonuses) in the UK were up 6% in the first four months of 2024 compared to the year before, potentially upsetting hopes for a summer rate cut.

New data from the Office for National Statistics (ONS) also revealed that real regular pay – which adjusts earnings to the rate of inflation – climbed 2% between January to March versus the year before.

While this increase in pay may seems small, Richard Carter, head of fixed interest research at Quilter Cheviot, noted that “this uptick in wages will be of concern to the Bank of England”.

“Though this is good news for households as cost of living pressures should now be easing somewhat, the Bank will likely fear that it risks being inflationary if businesses attempt to restore profits by raising prices,” he added.

Indeed, higher wages could be driving up inflation just as the Bank was hoping to ease its monetary tightening. However, unemployment rose by 166,000 in the first quarter to 4.3%, slightly offsetting the hikes in wages.

Charles Hepworth, investment director of GAM Investments, said: “This presents mixed signals for the Bank of England to digest ahead of any planned rate cutting in June – restrictive policy is starting to affect the jobs market even if pay growth, which in essence is inflationary, continues to remain strong.

“The focus will be on the inflation data next week – if it manages to fall, as expected, towards 2% then one should expect that these earnings and unemployment figures will be given lesser weight in their decision making.”

Nevertheless, Melanie Pizzey, CEO and founder of the Global Payroll Association, said today’s new economic data will to little to derail plans for a summer rate cut.

“While today’s figures show that earnings growth excluding bonuses has remained unchanged, there has been a marginal reduction in growth once adjusting for inflation and so the prospect of a summer rate cut remains promising, providing inflation continues to fall close to the target level of two percent,” she explained.

“This will bring hope to households across the nation who may have enjoyed some respite in the form of a pay rise, but continue to struggle with the far higher cost of living spurred by interest rate hikes over the last two and a half years.”