Private sector pay slows to six‑year low as BoE readies rate decision
UK private sector wages grew 2.9% in the three months to July, the weakest pace since October 2020, adding pressure on the Bank of England as it prepares to set rates on Thursday.
The Office for National Statistics reported that private‑sector pay rose by 2.9% in the three months to July, the lowest growth rate since October 2020. By contrast, public‑sector earnings climbed 6.3% over the same period, reflecting the timing of NHS pay awards.
Overall earnings excluding bonuses increased by 3.5%, matching economists’ forecasts, while total earnings with bonuses rose 3.9%.
Why the slowdown matters
Private‑sector wage dynamics are a key barometer for the Bank of England’s Monetary Policy Committee. Faster pay growth can trigger a second‑round effect, where higher salaries push up consumer prices and force firms to raise prices in turn. Martin Beck, chief economist at WPI Strategy, warned that the current pace aligns with the Bank’s 2% inflation target and is “increasingly difficult to ignore”.
At the same time, the National Institute of Economic and Social Research flagged a possible complication: a rebound in oil prices could lift energy and food bills, prompting workers to demand higher wages later in the year.
What’s next for policy and markets
The Bank of England’s nine‑member MPC meets on Thursday to decide whether to raise interest rates. Analysts expect a hold, but the decision will hinge on the latest inflation figures and the unemployment rate, which stayed at 4.9% in the July quarter.
Two‑year gilt yields have already nudged above 4.75% after stronger‑than‑expected growth data, feeding speculation of up to four further rate hikes. Mortgage rates have risen to a five‑month high, underscoring the market’s sensitivity to any policy shift.
Labour’s tenure has seen the unemployment rate climb from 4.4% to 4.9%, while job vacancies fell to a five‑year low. The government faces growing pressure to address youth unemployment, with Andy Burnham pledging action for NEETs and Helen Whately criticising Labour’s record on jobs.
Should the Bank decide to keep rates steady, the market may view the move as a vote of confidence in the cooling labour market. Conversely, a rate rise would signal that inflationary pressures remain a concern despite the softer wage data.
