• 7.8% annual wage growth, bolstering inflation forecasts; Bank raises interest rates.
• Economists predict a 7% price slowdown in July, surpassing Bank of England’s 2% target.
• Political battle over state pension increase intensifies due to wage data.

Regular pay increased by 7.8% from April to June, setting a new record for annual wage growth since comparable data first started in 2001. Forecasts that the Bank of England will need to raise interest rates once more to control inflation have been strengthened by this stronger-than-expected increase.

The rate of inflation, which gauges how quickly prices rise, has decreased but is still high at 7.9%. The most recent results, according to Darren Morgan, head of economic statistics at the Office for National Statistics, indicate that real pay growth—which accounts for the rate of inflation—is “recovering.”

Wage growth

According to Prime Minister Rishi Sunak, there is “light at the end of the tunnel” for the millions of people facing rising living expenses. Real pay growth has decreased by 0.6%, indicating that wage growth is not nearly keeping up with the rate of price increases.

When fresh inflation data is released on Wednesday, economists anticipate a further slowdown in price rise from 6.7% to 7% in July. That, however, is still significantly higher than the Bank of England’s goal of maintaining inflation at 2%. Stronger wages will fuel worries that price increases won’t subside as quickly as expected.

Former member of the Monetary Policy Committee, Sushil Wadhwani, said financial markets anticipate an increase in interest rates at the upcoming meeting in September, calling it a “virtual certainty.” Also predicted by the markets is that interest rates, which are currently 5.25%, could peak at 6% in the future.

The UK labor market is deteriorating as the unemployment rate increased from 4% to 4.2% and the proportion of those employed decreased marginally. The Bank of England will welcome the decline in employment in the three months leading up to June and the subsequent increase in the unemployment rate as signs that the labor market is cooling.

She did, however, add that she anticipates the Bank of England to raise its benchmark interest rate one more, to 5.5%, given the continued acceleration of wage growth.

The political battle over the state pension increase for the following year, which is controlled by the so-called triple lock, is likely to get more heated as a result of the wage data. According to government policy, the state pension is increased each April by the higher average wage growth, the inflation rate, or 2.5%.

The most recent data show that wage growth is still very strong and increasing, which is expected to spark debate over the allocation of government funds and the prospect of raising the state pension.

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