Average earnings in the UK

According to figures from the Office for National Statistics (ONS), average UK earnings, excluding bonuses, have increased by 7.2% over the last 12 months. This is higher than the 6.7% recorded in March and the expected 6.9% in a Reuters poll of economists.

While still lower than inflation, this represents an improvement in household purchasing power, especially as the Consumer Price Index (CPI) fell sharply to 8.7% in April. Additionally, broader employment data showed that the unemployment rate was 3.8%, while experts expected an increase to 4%. This is mainly the result of an increase in employment by 250,000 people in the three months to April. The improvement in wage rates can be partly explained by the increase in the minimum wage by almost 10% since March this year. The government introduced these increases to help the lowest-paid workers cope with the cost of living.

However, analysts responsible for setting interest rates at the Bank of England would prefer a fall rather than an increase in wage rates and are likely to use the data as a reason for another interest rate hike at the upcoming meeting next month. So far, the Bank of England has raised interest rates 12 times in a row to fight inflation.

The head of the Bank of England, Andrew Bailey, has repeatedly expressed concern that wage increases to offset inflation could accelerate the pace of inflation by increasing demand in the economy. This kind of argument has been rejected by trade unions, which seek to improve wage conditions in both the public and private sectors. Interest rate increases contribute mainly to the increase in the cost of loans, especially mortgage loans. The head of UK bank HSBC told Sky News that there were no signs of a return to normal in the cost of fixed-rate loans as inflation proved too “bullish”.

The Bank of England is expected to raise interest rates next month given rising core inflation, which ignores volatile elements such as food and energy prices. This is seen as the best indicator of anchoring inflation in the UK economy.

The head of the Bank of England himself said that we are currently dealing with a “very tight labor market” and the fall in inflation is taking “much longer” than expected.