Introduction: UK wage growth hits record at 7.3%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK wage growth has accelerated to a record high as workers continue to push for pay rises to protect them from soaring inflation.
New data just released this morning shows that average pay (excluding bonuses) rose by 7.3% year-on-year in March to May 2023, the joint-highest reading on record if you exclude the pandemic period.
That’s stronger than expected. And the previous month’s data has been revised higher too, to show 7.3% wage growth in February-April too (up from 7.2%).
Economists had expected a small slowdown in pay growth today, to 7.1%, but this data suggests that wage inflation is more persistent – which will cause serious worries in the Bank of England, which fears a price-earnings spiral.
Total pay, including bonuses, also strengthened – growing by 6.9% in the last quarter.
This means wages are still lagging behind inflation, though, which was recorded at 8,7% in April and May,
Growth in factory pay was the highest since records began in 2001, with pay growth of 7.8% in manufacturing. The finance and business services sector saw the largest regular growth rate at 9.0%.
This morning’s data comes just hours after Bank of England governor Andrew Bailey and chancellor Jeremy Hunt called for wage and price restraint to help the fight against inflation.
In his annual Mansion House dinner, Bailey told City bigwigs:
“Both price and wage increases at current rates are not consistent with the inflation target.”
Hunt took a similar line, saying the government would work with the Bank of England, and do “what is necessary for as long as necessary” to tackle inflation persistence and bring it down to the 2% target.
With public sector unions continuing to push for pay deals, Hunt warned:
That means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary.
Hunt also agreed that firms should rein in their efforts to rebuild profit margins, saying:
I agree with the Governor that margin recovery benefits no one if it feeds inflation.
Also coming up today
MPs will question UK mortgage providers this morning about the surge in borrowing costs, which is squeezing the affordability and availability of home loans, and the impact on house prices.
The Treasury Committee will hear from Lloyds Banking Group, Santander UK, Skipton Building Society, Nationwide and Paragon Banking Group about the current state of the mortgage market – including levels of mortgage stress, arrears and forbearance – and the outlook for the market in light of higher interest rates.
Yesterday, the average 2-year fixed residential mortgage rate jumped to 6.63%, up from 6.54% on Friday, and close to the highs last autumn after the “mini-budget”, data provider Moneyfacts reported.
Britain’s retailers have recorded a sharp rise in spending in June as hot weather prompted consumers to buy summer clothing and outdoor goods, despite growing pressure on budgets from the cost of living crisis.
The agenda
-
7am BST: UK labour market report
-
7am BST: German inflation report for June (final reading)
-
10am BST: ZEW survey of economic confidence in Germany
-
10am BST: OECD to release its annual Employment Outlook report
-
10.15am BST: Treasury Committee to question mortgage providers on rising rates, house prices and forbearance
-
1pm BST: Brazil’s inflation report for June
Key events
Pound hits 15-month high
Sterling is rallying this morning, following the news that UK pay growth was stronger than expected in the last quarter.
The pound has hit a 15-month high against the US dollar at $1.2913, the highest level since April 2022.
Traders are anticipating the Bank of England will continue hiking interest rates to cool the economy.
Not great.
Economists had expected the annual rate of earnings ex bonuses to drop slightly. Instead it stayed where it was at 7.3%.
Another sign that inflation seems to be bedding itself in in the UK. Pound up a bit as markets anticipate even higher interest rates https://t.co/NxxbKIqVcB pic.twitter.com/i5vmScaY2R— Ed Conway (@EdConwaySky) July 11, 2023
UK unemployment rate hits 4%
Today’s labour market report also shows that the unemployment rate has risen to 4% in March-May, up from 3.8%.
The number of people unemployed for up to 12 months has risen in the quarter too.
More timely data shows that the number of people on company payrolls has dipped by 9,000 in June, to 30.0 million.
ONS director of economic statistics Darren Morgan points out that real pay (adjusted for inflation) is still falling, saying:
“Total employment grew in the latest three months while the number of people actively looking for work also increased, both driven by men rejoining the labour market.
“Pay excluding bonuses has again risen at record levels in cash terms.
“Due to high inflation, however, the real value of weekly earnings are still falling, although now at its slowest rate since the end of 2021.”
Private sector pay growth at record, as public sector lags
Public sector pay growth continues to lag behind the private sector, meaning public sector workers are suffering a greater blow from soaring inflation.
In March to May 2023, average regular pay growth for the private sector was 7.7%, which is the largest growth rate on record (outside of the pandemic period).
Public sector pay grew by 5.8%, the fastest growth rate since autumn 2001.
Introduction: UK wage growth hits record at 7.3%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK wage growth has accelerated to a record high as workers continue to push for pay rises to protect them from soaring inflation.
New data just released this morning shows that average pay (excluding bonuses) rose by 7.3% year-on-year in March to May 2023, the joint-highest reading on record if you exclude the pandemic period.
That’s stronger than expected. And the previous month’s data has been revised higher too, to show 7.3% wage growth in February-April too (up from 7.2%).
Economists had expected a small slowdown in pay growth today, to 7.1%, but this data suggests that wage inflation is more persistent – which will cause serious worries in the Bank of England, which fears a price-earnings spiral.
Total pay, including bonuses, also strengthened – growing by 6.9% in the last quarter.
This means wages are still lagging behind inflation, though, which was recorded at 8,7% in April and May,
Growth in factory pay was the highest since records began in 2001, with pay growth of 7.8% in manufacturing. The finance and business services sector saw the largest regular growth rate at 9.0%.
This morning’s data comes just hours after Bank of England governor Andrew Bailey and chancellor Jeremy Hunt called for wage and price restraint to help the fight against inflation.
In his annual Mansion House dinner, Bailey told City bigwigs:
“Both price and wage increases at current rates are not consistent with the inflation target.”
Hunt took a similar line, saying the government would work with the Bank of England, and do “what is necessary for as long as necessary” to tackle inflation persistence and bring it down to the 2% target.
With public sector unions continuing to push for pay deals, Hunt warned:
That means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary.
Hunt also agreed that firms should rein in their efforts to rebuild profit margins, saying:
I agree with the Governor that margin recovery benefits no one if it feeds inflation.
Also coming up today
MPs will question UK mortgage providers this morning about the surge in borrowing costs, which is squeezing the affordability and availability of home loans, and the impact on house prices.
The Treasury Committee will hear from Lloyds Banking Group, Santander UK, Skipton Building Society, Nationwide and Paragon Banking Group about the current state of the mortgage market – including levels of mortgage stress, arrears and forbearance – and the outlook for the market in light of higher interest rates.
Yesterday, the average 2-year fixed residential mortgage rate jumped to 6.63%, up from 6.54% on Friday, and close to the highs last autumn after the “mini-budget”, data provider Moneyfacts reported.
Britain’s retailers have recorded a sharp rise in spending in June as hot weather prompted consumers to buy summer clothing and outdoor goods, despite growing pressure on budgets from the cost of living crisis.
The agenda
-
7am BST: UK labour market report
-
7am BST: German inflation report for June (final reading)
-
10am BST: ZEW survey of economic confidence in Germany
-
10am BST: OECD to release its annual Employment Outlook report
-
10.15am BST: Treasury Committee to question mortgage providers on rising rates, house prices and forbearance
-
1pm BST: Brazil’s inflation report for June
