Bank of England to Raise Interest Rates Following Record Wage Increase

author: FutureCar Staff    

Wage increases in the UK have reached a new record high, according to the Office for National Statistics. Between April and June, regular pay rose by 7.8%, almost matching the level of inflation, which stood at 7.9%. These figures are likely to put pressure on the Bank of England to raise interest rates in order to combat inflation. Additionally, the rate of unemployment in the UK increased from 3.9% to 4.2% in the three months to June, and the number of people with long-term sickness reached a record high.

As a result, the unemployment rate is now the highest it has been since the autumn of 2021, surpassing pre-pandemic levels. The Labour party has criticized the Conservative government for their lack of solutions to address the issue of unemployment. Inflation figures for July, set to be published later this week, are expected to show a decrease from 7.9% to around 7%. However, analysis by Treasury officials suggests that inflation will rebound in August.

The wage growth in the UK will likely lead to increased pressure on the Bank of England to raise interest rates from 5.25% to 5.5% in September. Analysts predict that the Bank of England will implement one more 25 basis point rate hike before ending its tightening cycle. Former Bank of England Monetary Policy Committee member, Dr. Sushil Wadhwani, expressed disappointment at the news of wage growth, as it may necessitate further interest rate increases.

Many top lenders have recently reduced interest rates on fixed mortgage deals, offering some relief to struggling homeowners. However, it remains uncertain if a price war will emerge if the central bank insists on raising the base rate next month. The latest data from the ONS also reveals that long-term sickness-related inactivity in the labor market has reached a new record high. Additionally, job vacancies have decreased by 66,000, although they remain slightly above one million.

Labour shadow work and pensions secretary, Jonathan Ashworth, criticized the Conservative government for failing working people and businesses in Britain. Chancellor Jeremy Hunt responded by highlighting the record number of employees and the government's efforts to improve the job market. Liberal Democrat Cabinet Office spokeswoman, Christine Jardine, expressed concern that the figures offer little comfort to families struggling financially. Jack Kennedy, senior economist at Indeed, noted that the cost of living may start to ease as pay growth has surpassed inflation for the first time in over one-and-a-half years.

FutureCar Staff