Wage growth nudges higher — what does this mean for the Bank’s war on inflation?
Wage growth has picked up again in the last three months thanks to higher pay packets from the public sector, complicating the path to potential interest rate cuts.
According to data from XpertHR, annual pay awards averaged six per cent in the three months to October, up from 5.5 per cent during the previous rolling quarter.
This means pay awards are back up to the level seen during the first half of the year, largely off the back of one-off bonuses for civil servants.
However, Sheila Attwood, XpertHR senior content manager, data and HR insights, suggested that the recent sharp fall in inflation meant that wage growth would likely ease in the coming months.
“For employers and employees, the significant drop in CPI from 6.7 per cent to 4.6 per cent, the largest in over thirty years, is a welcome relief,” Attwood said.
“This reduction enables more balanced and long-term decision-making, with employers now exploring ways to retain existing staff through enhanced benefits packages and opportunities for upskilling,” she continued.
Wage growth is a key proxy for the Bank of England as it attempts to determine how fast inflation will fall next year. Policymakers at the Bank see bigger pay packets as a sign that inflation is domestically driven.
The most recent figures from the Office for National Statistics (ONS) put annual wage growth at 7.7 per cent. Huw Pill, the Bank’s chief economist, said: “We certainly wouldn’t see pay growth at that rate as consistent with achieving the two per cent inflation target on a sort of ongoing basis.”
The Bank has repeatedly stressed its determination to keep interest rates higher for longer in order to bring inflation down to target on a sustainable basis, although markets have grown sceptical.
After the sharp fall in inflation last month and a surprise fall in retail sales, traders are confident that rate cuts will be underway by the end of next summer.