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UK pay rises at record rate stoking fears of another interest rate rise - REUTERS

SEPTEMBER 12, 2023

Bank of England under pressure as wages catch up with inflation

"Coupled with lower inflation, this means people's real pay is no longer falling," he added.

Will the Bank of England hike rates again?

Craig Erlam, senior market analyst at OANDA, said the BoE may have little option but to raise rates again next week.

"The UK labour market figures offer something for everyone on the face of it but under the circumstances, BoE hawks will likely be more emboldened by the figures than the doves.

"Employment figures fell for a second month as the unemployment rate stayed at 4.3% which may be viewed as mildly encouraging to policymakers hoping to see more slack in the labour market.

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"But much more progress will be needed if we're going to see the vote swing in favour of a hold."

Erlam noted that the markets seem to agree, with a 25 basis point hike almost 80% priced in.

“What comes after that is harder to judge at this stage and will depend on how the data performs over the next two months,” he added.

Nicholas Hyett, investment manager at Wealth Club, said BoE hawks will likely argue that inflation remains an ingrained problem within the UK.

"Wage growth remains strong, rising ahead of wider inflation, and government forecasts suggest CPI will tick up again in August. We think that means the Bank of England will add a few more turns to the interest rate screw before declaring it’s job done."

Danni Hewson, head of financial analysis at AJ Bell, said: “There may be trouble ahead — unemployment has ticked up, the number of self-employment jobs has experienced a record quarterly fall, and we’ve seen another record high in long term sickness levels.

“The labour market has been resilient but there are signs that the stress of the last couple of years has created a few cracks. The fear is that any more pressure might mean those cracks start to crumble.”


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