UK Wage Increase Slows, Bank of England Likely to Maintain High Rates

British wages grew more slowly than they have in nearly two years, yet remain high enough to suggest the Bank of England will not ease its firm interest rate policy. Excluding bonuses, wages rose by 7.3% in the three months to October compared to the same period last year, a decrease from the previous rate of 7.8%. This marks the steepest decline since November 2021 according to the Office for National Statistics (ONS), and despite economist expectations of 7.4% growth.

Economic indicators suggest easing wage pressures, observed Darren Morgan from the ONS. With the UK economy at risk of a mild recession and a reduced workforce due to the pandemic and Brexit, businesses are having trouble finding staff. EY ITEM Club's Martin Beck believes wages are trending towards moderation, but the current growth rate still exceeds the Bank's inflation target by a wide margin, implying that interest rates will remain high for the near future. JP Morgan's Allan Monks suggests a shift to a neutral policy could be possible in early 2024 if wage growth continues to slow.

The pound and UK bond yields fell after the wage growth report. The BoE is expected to maintain its position against rate cuts at its upcoming December meeting, after a series of 14 consecutive rate increases between December 2021 and August 2023.

Including bonuses, wage growth has also slowed, from 8% to 7.2%. The Bank is concerned that private sector wages are outpacing its 2% inflation goal, despite overall economic stagnation. Despite this, the UK's inflation rate has dropped to 4.6% from a high of 11.1% last October, which is still over twice the target rate, prompting the central bank to remain vigilant.

Job vacancies are declining but still exceed pre-pandemic numbers. In efforts to encourage employment, Finance Minister Jeremy Hunt has introduced welfare system reforms. As of September, UK unemployment holds steady at 4.2%, and employment has increased by 50,000. However, the ONS cautions the reliability of these figures due to recent changes in measuring job market data. Even with wage growth slowdown, workers are experiencing the greatest real income increase since September 2021, at 1.2% annually.