Record wage growth in the March-May period has led to further concerns UK inflation will remain higher for longer.
Wages rose 7.3% compared to the same period last year, prompting concerns it will drive up prices as firms face increased costs.
Meanwhile, The UK employment rate was estimated at 76% in March to May 2023, ticking up 0.2 percentage points from December-February’s reading.
See also: How ‘sticky’ will inflation really be?
Bank of England to ‘remain in hiking mode’
Industry commentators expect the data drop to force the Bank of England to continue its interest rates hiking cycle.
The Bank has increased rates 13 times in a row to combat high inflation, which currently stands at 8.7%.
Guy Foster, chief strategist at RBC Brewin Dolphin, said: “The news was good for UK consumers this morning. In fact, it was arguably too good. Whilst there were some positive signs for the supply side of the economy improving, the Bank of England will not be able to relax. The critical statistic in this release was the wage growth.
“It was stronger and revised higher to reach the fastest pace of wage growth since the depths of the initial pandemic’s onset. Back then it reflected changes on the mix of low paid to high paid jobs whereas currently it reflects a greater shortage of candidates for low paid roles. There are signs of the tightness in labour markets dissipating. Vacancies fell with weakness across most sectors. There was good news in that labour force inactivity fell again between March and May with fewer early retirements or increases in caring. There was no increase in long term sickness for the first time in five months.”
“Overall, employment growth remained healthy although early indications for June show tentative evidence of it faltering. With a strong employment market and modest falls in the rate of inflation, the misery index* has fallen from a level not seen since 1982 to a level not seen since March 1991,” he added.
“Consumers have been celebrating the moderation of inflation and robust wage growth by spending briskly on seasonal summer goods according to the latest BRC retail sales monitor. They are, however, becoming wary of committing to large durable goods. Even though there was evidence of the economy cooling, it remains, too hot for now. The Bank of England will need to remain in hiking mode.”
Neil Birrell, chief investment officer, Premier Miton Investors, said strong retail sales data gives the Bank leeway to continue to hike.
He said: “The employment data hasn’t given the BoE much cause for optimism over the economy slowing and calls for wage constraint at the Mansion House speech will be ringing loud and clear as wage growth data is not showing signs of abating. Strong retail sales data overnight also illustrates that the UK economy remains robust, piling the pressure on the Bank to act tough on policy at their next meeting.”
In his Mansion House speech last night (10 July), Chancellor Jeremy Hunt said there is “nothing insurmountable” in the UK’s cost-of-living crisis amid high levels of inflation. He said the UK’s economy has “shown itself [to be] more resilient than many predicted”.
See also: Is there life in UK consumer stocks?
