UK (Parliament Politics Magazine) – UK pay growth remains high at 5.8%, maintaining pressure on the Bank of England to avoid interest rate cuts amid concerns over inflation and economic stability.
As reported by The Guardian, the official data shows that pay growth reached 5.8% in the three months to January. This continues to maintain pressure on the Bank of England to avoid cutting the cost of borrowing when it announces its interest rate decision on Thursday.
How will pay growth impact interest rates?
Pay growth slightly declined but remains strong, reflecting continued efforts by employers to offer higher pay to secure skilled workers.
The 5.8% drop in pay growth, including bonuses, matches City economists’ expectations, reflecting a 3.1% rise after adjusting for inflation.
For the past three years, pay growth has stayed above 4%, making it the most significant period since the Office for National Statistics started recording the figures in 2001.
How did the Bank of England respond to rising unemployment and pay growth?
Policymakers at the Bank of England reviewed data on unemployment and sluggish economic growth this week. As pay growth remains strong, they are expected to maintain interest rates at 4.5% through May.
The unemployment rate remained unchanged at 4.4% in January, but the ONS warned that upcoming revisions to its labour force survey are expected. The statistics agency has struggled with data collection since the pandemic, as fewer people are willing to complete the survey forms.
What did Suren Thiru say about the UK job market and wage growth?
Suren Thiru, economics director at ICAEW, stated that declining business confidence is impacting the momentum of the UK’s job market.
He stated,
“Elevated wage growth is a double-edged sword for the economy because, while it’ll help boost consumer spending – a key driver of economic growth – it may limit the pace of interest rate cuts by fuelling fears over rising inflation.”
Mr Thiru said an increase in employers’ national insurance next month
“could well trigger both moderately higher unemployment and weaker pay settlements”.
Why did retail and hospitality see the largest earnings growth despite job losses?
Earnings growth, excluding bonuses, reached 5.9%, with the private sector growing by 6.1% and the public sector by 5.3%. The Office for National Statistics revealed that the retail and hospitality sectors experienced the largest annual regular growth rate at 6.3%, while the construction sector saw a 6.2% increase.
Despite strong pay rises in retail and hospitality, job losses, especially in retail, have remained high. The British Retail Consortium found that 249,000 jobs were lost over the past five years, leaving the industry with 2.88 million jobs.
Did recent surveys reveal a recovery in worker demand?
Recent business polls reveal that a slight recovery has been observed in the last month.
The Recruitment and Employment Confederation’s labour market tracker shows a recovery in job adverts for sectors like IT services and construction, which have struggled over the past year.
A recent survey by ManpowerGroup revealed that the demand for workers has stabilised, despite growing concerns about business confidence continuing to decline before the upcoming tax rises.
Economic experts predict that inflation-busting wage rises will lead to higher household spending this year. A survey by the BRC revealed that confidence in the economy and personal finances has improved.
Rachel Reeves’s spending cuts in the spring statement
Chancellor Rachel Reeves plans to reveal the most significant spending cuts since austerity, after ruling out tax increases to tackle the budget deficit.
Next Wednesday, the Chancellor will inform MPs that Whitehall budgets will be slashed by billions more than expected, with some departments potentially seeing cuts of up to 7% over the next four years.
How did Whitehall sources describe the government’s spending cuts?
A Whitehall source stated,
“The government has been clear that departments will have to find more efficiencies. That is why Wes Streeting [the health secretary] has cut NHS England, that is why Liz Kendall [the work and pensions secretary] has made reductions to welfare payments.”
Another insider said,
“I don’t know how much longer we can go on pretending this is not austerity when the reality is we’re making cuts to vital public services such as police and prisons.”